Homes still in short supply

In these times of lower auction results, and tales abounding of property bargains galore it might seem a bit unbelievable to be talking about a housing supply issue.

Many vendors are probably thinking that the only supply issue they have right now is that there’s too many properties on the market. But behind the scenes there’s still plenty of talk about how we’re not building enough houses by number crunchers who are taking a long-term view. They argue that if we don’t get building soon, it’s really going to bite down the track when a lack of supply will keep prices artificially high.

For now, though, says Robert Mellor, managing director at BIS Shrapnel, there’s a very real chance we’ve temporarily “thought” ourselves out of the problem by changing the way we live. As any parents of Gen Ys or even some Xs will tell you, there’s been a huge surge in young people staying at home for longer. The trend started in Melbourne and Sydney and has been taking hold in Brisbane over the last two years.

“Once you’ve got that tight market for such a significant period of time, people then … start to stay at home for longer, or they live in larger group households,” says Mellor. “That’s just the way people behave in [the] future.”

Nevertheless with immigration predicted to climb to more than 200,000 people arriving annually in a few years’ time, the mental powers of the young can only go so far and Mellor says underlying unmet demand for extra houses won’t go away.

“We estimate underlying demand is probably just under 183,000 dwellings per annum for the next five years,” he says.

“If interest rates rise as we expect over a two-year, two-and-a-half year period, then we won’t go anywhere near averaging 183,000 dwellings over the next three to four years and there’ll be further significant shortages in the marketplace.”

This year it’s expected we will build less than 150,000 dwellings.

When the National Housing Supply Council last released a report, in 2010, it said Australia was 178,400 dwellings short. That’s a tad below where BIS Shrapnel puts the shortage.

The supply council predicted the country would gain 3.2 million more households by 2029, and would need to build 160,000 dwellings every year to keep up with demand. But in 2008-09 we managed to put up about only 127,000.

The Housing Supply Council is due to report again later this year.

Respected economist Saul Eslake, who sits on the supply council and is also with Melbourne think tank The Grattan Institute, suspects the problem could actually have gotten “a bit worse because the level of dwelling completions, I suspect, would have been lower than was assumed in compiling [the most recent] report”.

To make matters worse, Eslake’s Grattan Institute colleagues have just released a study that shows the houses we are building aren’t necessarily what people want. Many people would settle for a semi or an apartment in the middle or outer ring suburbs, but these are hard to come by, the report found.

Tackling a housing shortage – even if it doesn’t feel like there is one at the moment while we are wallowing in properties for sale – would require a multi-faceted approach.

About 70 per cent of new housing stock is expected to be medium or high-density properties in infill developments, but community opposition is a significant barrier because people don’t necessarily want tower blocks in their backyards. In many cases they are also opposed to lower density townhouses and apartments.

Other factors are the higher costs of building in existing areas, banks that are not so keen to lend for development, and investors giving property a wide berth.

Eslake says the best way forward is for governments to abolish any financial help for home buyers – such as stamp duty concessions and first home buyer grants, because they just increase the price of properties. “All that happens is that the same people end up paying more for the housing that they would have bought anyway,” he notes.

Eslake says that money should then be used to increase the supply of affordable housing by governments funding new homes for people on low incomes, possibly through community housing organisations.

“The money is there to do something if they want to but they keep wasting it by giving cash away,” he insists.

Eslake’s sentiments echo the official finding of the supply councils’ last report: “Even if the market responds to demand by increasing supply over time, it is unlikely to provide sufficient housing for people whose incomes are towards the bottom of the house income distribution … a substantial part of the response to this gaps needs to lie with government policy.”

Do you think Australia is building enough homes? If not, what is the solution?

Source: Boyd, C. 21 June 2011. SMH http://smh.domain.com.au/real-estate-news/blogs/talking-property/homes-still-in-short-supply-20110621-1gcm9.html

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