The Government Strategy on housing supply

A State of Supply report was released this week by the Federal Government’s National Housing Supply Council.  By far the most significant finding set out in the report was the fact that nationally Australia is suffering  from a gross undersupply of housing.  The report estimates a national shortage of at least 178,400 dwellings.

The greatest housing shortage was found to be within New South Wales (57,600) and Queensland (56,100).  The states with the smallest estimated shortfall in housing were found to be: South Australia (100) and Tasmania (1,000).

National estimated cumulative housing undersupply graph

Source: rpdata.com, National Housing Supply Council

The Council estimates that by 2014 the gap between supply and demand will increase to 308,000 dwellings across the country.  The report also looks at how the strategies implemented by the individual states towards meeting their housing requirements.

During 2009, not a single Australian state was capable of fully meeting their housing demand.  In the worst cases the NT only met 38.8% of its demand, NSW met only 81.1% of its demand and WA met 81.5% of its demand.  Nationally, there was a shortfall of 14.7% in housing to meet demand during 2009.

Extent of Housing Undersupply by States – 2009

Source: rpdata.com, National Housing Supply Council

So what are the key reasons for such a significant shortfall?  It all comes down to supply and demand.

On the supply side we have the following factors at work:

  • Low Levels of new dwellings being constructed
  • 78,800 too few dwellings last year
  • 178,400 too few dwellings since 2001 cumulative
  • Increasing development costs (land cost, government taxes and levies, professional fees, construction, internal costs and interest)
  • To develop a two bedroom unit the development cost ranges from $468,000 in Adelaide to $554,000 in Sydney
  • To develop a 3 bedroom home within a greenfield site ranges from $370,000 in Brisbane to $561,000 in Sydney
  • High costs of infrastructure and contributions – roads/water/sewage/ etc
  • Lack of suitable land for development
  • Insufficient infrastructure linking greenfield housing releases
  • Banks being less flexible in lending for new development in the post- GFC climate (particularly for off-the-plan units)

As far as demand for housing is concerned, we have the following factors at play:

  • Record population growth (an additional 451,900 new Australians over the year to Sep ‘09)
  • An additional (estimated) 205,900 new households
  • 127,100 new dwellings (after adjustment for demolitions and second homes)
  • Strong employment environment – the national unemployment rate has averaged 4.8% over the last ten years
  • Strong investor demand since 2001
  • Consumer preferences – desire for large and modern homes
  • Rental market – ongoing rises in rental rates (about 10% per annum over the last three years)

Demand for Dwellings is well ahead of supply in all areas. This is contributing to greater competition for available properties which in-turn leads to price increases.  The big concern of course is how high is too high.  It is likely there will come a point where prices get too high and people will choose to live their lifetime renting rather than owning their own property.  The issue then being, who can afford to own these properties that people choose to rent, investors, the Government?

It’s clear that action needs to be taken to deliver affordable housing and plenty of it and not just on the outer suburbs close to employment nodes and barring that close to amenity which enables residents to get to and from their place of employment efficiently. Australian housing supply is becoming a big issue and one that just can’t be ignored.  With house prices continuing their growth and affordability set to worsen as interest rates increase, housing supply and affordability may be high on the political agenda in the current election year.

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