Why haven’t the number of home sales and dwelling approvals moved in line with population growth?

With the release of the latest building approvals data from the Australian Bureau of Statistics this week for April 2012 we are seeing no signs of improvement for the home building sector.  The lack of activity has a significant multiplier effect across the economy; not only is it those linked directly to the construction sector which suffer due to lower levels of construction but also retailers and service providers.  The slowdown isn’t only being felt in new housing, the number of established houses and units being sold are also tracking below average.

Although new construction and sales of existing properties has been trending lower for many years now, Australia’s population has continued to grow.  On an annual basis between the March 1994 quarter and the September 2011 quarter, Australia’s population has increased by 274,917 persons each year.  This increase in population also increases the requirement for homes in which to house these new individuals.  Population growth is currently 16.3% above the long-term average highlighting that despite population growth well below peak levels, it is well above average over recent times.

Looking at the annual volume of house and unit sales across Australia over the same period highlights this disconnect more specifically.   Annual sales volumes peaked over the September 2003 quarter with 617,962 sales for the year.  Ever since that time sales volumes have trended lower and as the previous chart shows, population growth has increased over that period.  Over the period from March 1994 to March 2012 the Australian housing market has averaged 472,504 sales each year.  This figure is -24% lower than the peak market activity however, it is -19.3% higher than the volume of sales over the 12 months to March 2012.  Transaction volumes have been below the long-term average since September 2010.

As already mentioned it hasn’t only been the decline in sales of existing homes which has been heading in the wrong direction in recent years but also the number of approvals for new dwellings.  Dwelling approvals peaked over the 12 months to September 1994 with 193,754 new homes approved for construction over the year.  Over the 12 months to March 2012 144,594 new dwellings were approved for construction which was -25% lower than the historic peak but also -9.1% lower than the long-term average of 159,043 approvals each year.

If the housing market was acting efficiently and affordability factors and government interference played no part you’d anticipate that sales volumes should have been increasing over time along with building approvals as the population has continued to grow.  Of course this has not been the case.  A restrictive supply of residential land, the slow process of gaining approvals for new development and the various government fees and charges associated with new development which are ultimately passed on to the purchaser have all contributed to a falling rate of new construction and fewer sales transactions.  Of course these aren’t the only factors, availability of credit for housing, the greater propensity for households to save rather than spend, housing affordability issues and taxes on moving such as stamp duty have also contributed to the persistent insufficient supply of new housing and a lower volume of home sales.

The most worrying factor is that population growth is already at a level well above the long term average and the more up-to-date overseas arrivals and departures data from the ABS shows that net long term arrivals are staring to increase once more which suggests population growth is set to accelerate over the coming quarters.

Of course, households are responding and we are seeing average household sizes increasing after they have trended lower for much of the last century and we are seeing children stay in the family home for longer.

In my opinion it would be good if we could see an action plan from all levels of government as to how we can tackle these issues.  We see many politicians come out and make bold statements about whether they believe in population growth or not and that is an important debate however, it is unlikely that our population will not grow.  What is an equally, if not more important debate, is how we are going to provide the necessary amount of housing to our population at an affordable price point (whether it be to rent or to buy) for all sectors of the community.

Housing is the responsibility of all three levels of government, with local government’s approving development proposals, state governments determining where development can take place and federal government to some degree managing population growth.  Consultation and coordination across all three levels of government is imperative to effectively manage housing supply.  It’s not just a housing undersupply which is apparent in Australia it is an undersupply of housing at an affordable price point and that is an issue which is going to be far more difficult to correct.

I would like to hear your feedback and what you believe can be done to fix this problem.

About Cameron Kusher

Cameron Kusher is Head of Research at CoreLogic, specialising in primary and secondary data analysis, property market commentary and consultancy. Cameron has a thorough understanding of the fundamentals such as demographics, trends, economics and spacial analysis and is a regular keynote speaker for property-related groups, regulated industry bodies, corporations and the government sectors. Follow Cameron on Twitter @cmkusher

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16 Responses to Why haven’t the number of home sales and dwelling approvals moved in line with population growth?

  1. Duncan June 1, 2012 at 10:28 am #

    When you say “we are seeing average household sizes increasing after they have trended lower for much of the last century”, do you have some statistics to support the statement?

    I will refer to government provided data;
    http://www.aifs.gov.au/institute/info/charts/households/havsize.gif

    And also the ABS projections pointing at household sizes decreasing;
    http://abs.gov.au/AUSSTATS/abs@.nsf/0/916f96f929978825ca25773700169c65/Body/0.1368!OpenElement&FieldElemFormat=gif

    I’m not sure we’re seeing household sizes increase at all.

    Thanks to GG for collating this information for me;
    http://worldhousingbubble.blogspot.com.au/2012/05/australias-prices-riding-on-shortfall.html

  2. Steve Moran June 1, 2012 at 5:22 pm #

    Release more land and make land development easier to do (less government red tape) – problem solved.

    • The_Mainlander June 7, 2012 at 9:49 pm #

      Boo ya!

  3. Steve June 1, 2012 at 11:08 pm #

    The availability of credit is a major factor to the fuelling of demand. When credit is harder to obtain then consumers who were previously able to purchase, now can not & with this the buyer demand reduces which has a flow on effect in no or reduced capital growth. I would also say that with higher living expenses, economic & job uncertainty, many purchasers are not wishing to upgrade or take on new financial commitments. There may also be a glut of properties due to the past years, before the GFC, of the popularity of investment properties being promoted. In many cases new subdivisions have been heavily underpinned by speculative investors and not by home owner demand. With the aging population, are we seeing less of a demand due to the older generation no longer requiring new homes and or moving to retirement accommodation? The underlying negative or subdued feelings/mood of the population, both here & overseas, doesn’t provide for a growing & optimistic economy.

  4. Michelle June 2, 2012 at 1:08 pm #

    Would you clarify how the increase in population increase is broken down. “Australia’s population has increased by 274,917 persons each year” – are these individuals that need a dwelling over their head or does the number represent couples and/or families, which would therefore have a significant impact on the “real” number of dwellings that are required?

    • emmi June 7, 2012 at 11:57 pm #

      I too find this an interesting question. If you bring in extended families as immigrants, or a breadwinner hoping to later settle a whole family, or just individuals looking for short term labour opportunities, it greatly changes what kind of shelter they will demand. An extended immigrant family will easily put 6 in a dwelling.

    • Cameron Kusher June 8, 2012 at 10:41 am #

      Hi Michelle

      The population growth figures have been calculated by annualising the quarterly population data provided by the Australian Bureau of Statistics. The data is available from their website and is category 3101.0.

      Cameron

  5. robert chambers June 4, 2012 at 1:12 pm #

    Notwithstanding the current lack of credit, the main issues for the building down turn are economic perceptions about the world economy for the upper end of the market and housing affordability for the lower end, coupled with s/duty costs that inhibit the necessary flexibility for a more mobile market. ie removal of S/duty would encourage more movement in the market, pay off a mortgage or act as a deposit.
    This situation is brought about by the ever spiralling costs of building and development and the first place to focus would be with local govt. The time wasting, bad management, frivolous objections and processing delays add $000’s to development costs even when DA’s are compliant.
    A fix for frivolous objections (and a great time waster) would be to charge $100 for each objection – this would knock out 80% of objections and leave those that had some bisis for argument.
    There is much more to say, but I’ll leave it to others.

    • Duncan June 7, 2012 at 7:39 am #

      There is certainly no lack of credit, a lack of lenders willing to take on high risk borrowers I would suggest is closer to the mark, no ones knocking back people with savings and incomes.
      The economic perceptions are actually observations, all the stuff in the news is real.
      A mobile market shouldn’t be investing in houses, they aren’t mobile assets.
      Stamp duty was always there and is not the inhibiting factor, generationally high house prices are the #1 cause of the lack of buyers. It is simply cheaper to rent and you will have a better and more mobile lifestyle for it.
      The ever spiralling costs of building and development are also caused by using debt to fund the initatives. The biggest investor in an initative would usually take most of the profit. Developers seem to forget that, they’d make a lot more profit if they used their own capital.

      Rather than pointing fingers at all the reasons the industry isn’t compounding growth, the answer is very simple, compound growth is expotential and unsustainable. I learnt this in high school, the same class (Business principles) that taught you to calculate how much you pay for assets when you use credit to buy them. The classes were to educate people to stop them becoming victims of credit.

      • Cameron Kusher June 8, 2012 at 10:49 am #

        Hi Duncan

        This is correct and RP Data has for a long-time stated that the growth in recent years is due to a once-off adjustment. In the coming years we anticipate that at best home values will increase in line with household income growth. Given an expectation of these conditions, investors are going to have to be much more focussed on rental returns than on negative gearing because it seems as if the significant growth in values will simply not be available.

        Annual capital growth of 10% is much easier to achieve at a median sale price of $300,000 than it is at $470,000 (the current median house price across the combined capital cities). I believe there is a psychological influence also, although some measures show that properties are becoming more affordable and are similarly affordable to what they were in 2002, the act of paying $490,000 for a home is much different to paying say $250,000 which was the median home price across the capital cities 10 years ago.

  6. Zetetic June 7, 2012 at 2:20 pm #

    THERE IS A SURPLUS OF HOUSING STOCK AND MORE HOUSES BUILT EACH YEAR, FOR THE LAST 20 YEARS, THAN IS REQUIRED. House building has beaten population growth for a quarter of a century.

    Looking at the data you have presented points to the fact that dwelling approvals have more than kept up with population increase!

    If we can assume that dwelling approvals mean that 1 more dwelling is added to the housing stock and that 1 dwelling will house 2.5 people than it is a simple calculation to find out how many houses are needed to be built each year.

    since 1994 on average the population has increaased by 274,917 people each year.
    Divide this by 2.5 and you get 109,967 houses needed to be built each year to house the new people. The approvals are at 159,043 dwellings on average per year since 1994.

    That is a SURPLUS of 49,076 dwellings built each year for the last 18 years.

    A massive 883,368 MORE HOUSES THAN REQUIRED. the calculation does not include dwelling destruction or the conversion of one house into many units etc. but it gives a good idea of the scale of OVERBUILDING OF HOUSES for the last quarter of a century.

    • Zetetic July 3, 2012 at 1:53 pm #

      Woops! The bogus housing supply figures concocted by the National Housing Supply Council (which assume supply demand ratio was in balance in 2001 and use spurious assessment of demand on houses based on homelessness and number of renters) are proved to be unaccurate!
      http://beta.afr.com/p/business/property/housing_undersupply_you_shouldn_FFAUmmahkHLANiAOxaOY2N

      in essence the article states..

      “The chairman of the federal government’s National Housing Supply Council says recent estimates that Australia has an undersupply of 228,000 homes could be incorrect”………

      “ABS Census figures released last month showed vast differences between the population numbers used by the council to draw its conclusions and census conclusions”……

      “Adjusted by Morgan Stanley researchers to allow for a potential census under count, the 228,000-home undersupply becomes a 341,000-home oversupply.”

      So if the question is:
      “Why haven’t the number of home sales and dwelling approvals moved in line with population growth?”

      The answer is: because they have been far ahead of population growth due to speculative buying and building of property, driven by easy access to credit and the belief that house prices always go up. Helped along by the National Housing Supply Council stating that incorrectly that there is a shortage of housing. Looks like the realestate industry, the banks and the goverment have some explaining to do.

  7. Lindsay June 10, 2012 at 1:43 pm #

    Hello Cameron, I have found this artical most interesting along with Duncan’s comments and your reply. As long as we have close to full employment, the Govt. of the day will encourage immigration. The majority of the people coming to Aust. are of age that they can enter the workforce and the Govt. doesn’t have to wait 20yrs for them to be educated and trained. Your question was how to get a supply of housing at an affordable price, which I think has been missed by the replies. This is more complex than just releasing more land for development surrounding our capital cities.

    Since the early 1980’s Govt.s, to improve efficiencies, have been moving towards centralisation of their public services. Because of the mutipling effect these agencies have on employment in there surrounding communities, pressure for housing moves with these agencies. Industry to a certain extent moves with Govt. aswell.

    The National Broadband Network is the start. People have to have the ability to work outside the major metropliton areas. Decentralise our Govt. workforce to more rural areas. This keeps smaller communitiees “alive”, spreads housing pressure, infrastructure loads. ie. Hospitals, roads, water, etc. and jobs away from capital cities.

    I look forward to your future articles.

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