Shortage or glut? Feast or famine? The question of whether Australia is suffering a housing shortage continues to be hotly disputed, with the real estate and construction lobbies arguing a desperate shortage exists, while other independent bodies, such as Prosper Australia, disputing the notion of a shortage.
The housing glut argument is led by Earthsharing Australia, which last year produced a report suggesting that the vacancy rate in Melbourne (until recently, one of Australia’s hottest property markets) was about 5%. In fashionable suburbs, such as East Melbourne or the Docklands, vacancy rates exceeded 8%. Earthsharing’s report, which was based on water statistics provided by City West Water and Yarra Valley Water, suggested that more than 60,000 properties lay vacant in Melbourne — substantially more than the reported vacancy report suggested by the real estate lobby.
While not a perfect measure, there is a degree of commonsense to Earthsharing’s report. Rather than attempt to guess whether there is a housing shortage based on economic assumptions, the group simply checked whether to see water was being used in a property — it is not unreasonable to suggest that if no water is being used for a length of time, the property is unoccupied.
That view was contrasted by a report released by the National Housing Supply Council, which echoed the sentiments of constructions groups and claimed Australia was in the midst of a housing shortage. In fact, according to the council, the shortage actually increased by 28,200 to 186,800 during 2011. Even worse, the alleged shortage is forecast to widen to 640,000 within 20 years.
The National Supply Council is a strange beast — formed by the federal government in 2008, the organisation is a strange mix of academia, property developers and the even respected Saul Eslake. Included in the council are Mark Hunter (CEO of Stockland Residential), Nigel Satterley (property developer and BRW Rich List member), Ruth Spielman (executive officer, National Growth Areas Alliance) and Simon Norris (Clarendon Homes Queensland).
The council’s rationale for deeming a housing shortage is worth considering further. That is because rather than look at actual demand for housing, the council uses “underlying” demand. This leads to strange results.
Last year, the population of Australia increased by 320,000 — this was through a combination of immigration and births (less deaths). This figure is sourced from the ABS, so we can assume it is about a correct a figure as we can locate. According to the council’s report, there were 131,000 dwellings added last year (this figure is lower than what other sources claim, but we’ll accept it).
The council’s own report noted that there are 8.7 million households in Australia — with a population of 22.4 million, that means there are 2.6 people per household. Using fairly simple arithmetic, that means with 2.6 people per dwelling, and 131,000 new dwellings, enough housing was built last year for 340,000 people.
But wait, the population only increased by 320,000 people — that means, despite the council’s claims, there is a surplus of housing being built (even with dwelling construction being less than forecast). This appears to contradict the council’s finding that the shortage increased in 2011.
The council claimed that “on the demand side, at any given point in time underlying demand may not feed through directly into effective (actual) demand” — basically, what that appears to mean is that while there isn’t really a shortage, it will make some assumptions that allow a shortage to appear.
Later, the council noted that “the level of underlying demand is driven mostly by migration and other demographic factors”. Essentially, it appears the council is claiming that demand may increase in coming years (even though immigration levels are falling, rather than increasing), and that is why a shortage exists. The fact that a surplus of housing was built last year is disregarded.
More mysteriously, the Supply Council also claimed that “there were about 8.7 million households in Australia in June 2010. The number of households is projected to be 12 million by 2030, representing a net increase of nearly 3.3 million households between 2010 and 2030”.
This alarming forecast again doesn’t appear matched by recent facts.
Based on household numbers, the council is predicting an Australian population of 31.2 million in 19 years. That’s an increase of 9 million from the current level. The problem? That would require Australia’s population to increase by 473,000 per year — 42% more than the population increased in 2011. In fact, that’s a higher population growth rate than Australia has ever recorded. The claim is more difficult to justify given that Australia’s population growth and migration is slowing after spiking in 2008 and 2009 (see table below).
| Year Ending | Net Overseas Migration |
| June 2008 | 277,400 |
| June 2009 | 299,800 |
| June 2010 | 198,300 |
| June 2011 | 170,300 |
House prices haven’t increased because of increased demand from migrants outstripping dwelling construction — rather, prices have risen because bank lending has created false demand. Supply factors have played little, if any role in the recent house price growth. As soon as bank lending is restricted (and this is happening already), it is likely the illusion of a supply shortage will disappear. Just like what happened in Japan in the 1990s, or California and Ireland after the recent financial crises.
Hang on Adam – there’s a few holes in your argument. Fairly large ones at that. So the Earthsharing study found heaps of un-occupied houses in Melbourne. Great. If only we could live in them, but they’re presumably being left vacant by the owners. That hardly adds to the housing stock, unless we can find a way to force them to let people live there. So, the Supply Council numbers are probably more realistic in the sense of ‘dwellings available for rent/purchase’ as opposed to ‘dwellings that a family could squat in’.
Secondly, the population in 2030 the Supply Council appear to have used is based on ABS predictions – granted they’re using the largest prediction, but they only rely on an immigration rate of 125,000 per year – much less than our current migration level. These things (population) tend to grow exponentially, you see. So I’m not sure what the problem with them extrapolating from that figure is – it seems pretty reasonable to rely on the ABS.
Love your stuff normally, but I worry you’re looking for a conspiracy when there just isn’t one – Australia just needs more houses.
EWATERFORD:
You’re making some bold assumptions re the reasons for unoccupied housing..any data to back it up?
As for population growth, what’s your view of Adam’s claim of 473,00 per annum?
It is true that “Supply factors have played little, if any role in the recent house price growth.” Supply/demand arguments are relevant to rents. But there is a range of tax policies under which “rational” property prices are out of reach of the financial system, with the result that the market price of a property is determined by what you can borrow against it and is decoupled from the rent. The ultimate examples of this decoupling are those homes that EWATERFORD describes as “left vacant by the owners”, meaning that the owners are accepting zero rental income in the expectation of capital gains.
Good point Kevin – I don’t actually have any data on the intentional vacancies – there was a series of articles in the SMH about the number of intentionally vacant properties in Sydney a few weeks ago, but I don’t have anything more concrete.
What I would say is that if they’re not intentionally vacant, then what’s going on? They’re not showing up in real-estate figures, so either they’re not being made available to rent/buy or there is a huge private property market that no-ones aware of or measuring. I suspect the first is more likely.
As to the 473,000 per year – that’s what the ABS is stating is going to happen (in their highest of 3 growth predictions), as a combination of people living longer, immigration and more births.
I wish there was a website that could compile anecdotal evidence that might answer these questions. I.e. “Are you presently looking for a house?”
I have no faith in journalists (present company excepted) and even less in industry specialists due to their lack of objectivity. It doesn’t take much to distort statistics in any direction, even less when you deal with housing and the lack of transparent and timely information.
With rising oil prices, houses need to be near ‘long term’ jobs.