A Shortage of Housing in Australia - Why?

Written on the 10 January 2014 by Callum Scott

It seems to be generally agreed that there is a housing shortage in Australia.  Counterintuitively, for the last three years construction has fallen every month.  The population however, continues to grow at 1.8% per annum fuelled by an increased birth rate and immigration.

The Housing Industry Association has estimated that 180,000 new houses will have to be constructed every year to meet this population increase.  However, the 20-year average is currently 155,500.

Let’s apply Economics 101 – Supply and Demand.  Looking at demand, it’s certainly there.  More people means more homes required.  But what about affordability?  Interest rates are at a historic low and lenders are competing fiercely for the mortgage market.  This is lubricating demand where affordability is not an issue, but without new supply the cost of existing stock will inexorably rise. 

First time buyers will become an even rarer breed.  Cashed up investors will purchase as they observe an increase in rental demand and a consequent rise in rental prices, coupled with capital gains.  You’ve got to live somewhere!

A sizeable proportion of rental properties are similar to what a first time buyer would hope to purchase. Demand for this type of property from investors will push up their prices making them even more inaccessible.

In a perfect world supply would rush to meet demand.  This would stabilise prices and some sort of equilibrium would be reached.  So where’s the supply?  Why are builders and developers not satisfying demand at a greater rate?

Governments should recognise that shelter a.k.a housing is a basic requirement and that it is their remit to facilitate supply.  We need less red tape and faster land release.  The contentious issue of stamp duty should be addressed and preferably reduced.  Planning approval times should also be reduced and building regulations should be reviewed.

Unless these, and other issues are satisfactorily addressed in a timely manner, the situation will not improve.

Author: Callum Scott
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