Housing Shortage Australia
Housing surplus raises real estate crash risks
www.first2move.com.au
Housing supply and demand balance Q4, 2016
Market
Surplus/deficit (Q4, 2016)
Cumulative surplus/deficit (since 1996)
NSW 5,286 33,592
VIC 2,879 52,758
QLD 6,183 29,039
SA 1,708 42,766
WA 4,669 43,782
TAS 232 21,208
NT 638 7,185
ACT 894 12,021
Australia 22,427 235,299
Source: LF Economics analysis of ABS data
Despite excluding the period pre-1996, when Australia's housing stock was growing much more rapidly than its population, LF Economics still finds a dwelling surplus of almost a quarter of a million homes.
Housing surplus grows when prices rise
Not only that, but Philip Soos observed that, over the past two decades, the periods of greatest excess housing supply had occurred while prices were rising, while periods of undersupply coincided with weaker price growth or falling values.
It makes perfect sense. Here's why.
"Rising prices provide incentives to developers and builders to construct supply and offer it to the market," he explained.
"We saw in the 2000s with the United States, Ireland and Spain, they went on absolute building sprees and yet, all the while, their economists were saying high prices were caused in part by shortages and that obviously wasn't the case."
But, despite having co-authored an 800-page economic history of the Australian housing market, Philip Soos is well outside the mainstream of property analysts.
BIS Oxford Economics, on the other hand, is about as mainstream as you can get. The firm is an economic consultant to some of Australia's largest property and building materials firms, which rely on its estimates and forecasts for their business decisions.
Whatever its methodology, BIS Oxford doesn't see a huge national housing oversupply at the moment. Then again, nor does it see much of an undersupply, except perhaps in Sydney.
BIS Oxford Economics housing demand v supply analysis Photo: BIS Oxford Economics finds excess housing supply in all states except NSW and Victoria. (Supplied: BIS Oxford Economics)
The upwardly revised population figures for Melbourne have eradicated the apartment glut BIS Oxford previously thought existed, but not for long if tower blocks keep springing up in and around the CBD at the rate they have been.
And Melbourne's gain was in large part Perth's loss, with WA's population figures revised down by well over 50,000 while Victoria picked up more than 100,000 residents.
That leaves WA with the most oversupplied market on BIS Oxford's forecasts out to 2019, with Queensland looking very risky and every other market except NSW slipping into at least mild oversupply by next year.
Sydney the only capital where housing shortage may exist
It's a conclusion Philip Soos agrees with, even if he differs on the magnitude of the oversupply.
"I would say that Sydney, given that it has the highest rent-to-income ratio and also has the highest rent growth at the moment, that's probably the most supply constrained," he observed.
"Followed by Victoria, which is Melbourne, even though it has the highest cumulative oversupply, because we've got 120,000 flooding into the state every year and most of them are heading towards Melbourne, it's still a pretty thin buffer."
So it's a bubble. Now what?
Regulators finally admit Australia has a property bubble, but is it too late to deflate it without popping it? asks Ian Verrender.
If you don't believe the private sector analysts, then a group of academics from the Australian Housing and Urban Research Institute have reached a similar finding that there is no housing shortage - and they only looked at the last decade, which is when Australia's population growth has been at its highest.
"In 2015, dwelling completions increased the Australian housing stock by 2 per cent and yet again South Korea is the only country that achieved a larger proportionate increase," their paper noted.
"The net of demolition growth in housing stock exceeds population growth in Melbourne, but falls just short of stronger population growth in Perth.
"There remains a healthy margin between expansion of the housing stock and population growth in all the other state capitals and territories except Sydney."
I also called the Housing Industry Association, which once did estimates of the housing supply-demand balance.
But its senior economist said the HIA had given up, precisely because a shortage/surplus result was so heavily dependent on which base year you selected.
He explained that the HIA now watches the rental market, particularly rises and falls in rents, as a timely way to determine whether there is a housing shortage in a particular market.
Weak rental growth indicates no housing shortage
It makes sense because asking rents are generally more responsive to supply-demand imbalances and also because rents, unlike home purchase prices, are not influenced by interest rates and the availability of credit - you don't borrow money to rent a home, how much you will pay depends on your income and how well supplied the market is.
Housing supply v rents Photo: There is a clear correlation between dwelling supply and rents - excess supply leads to weaker rent growth. (ABC/ABS)
On just about every measure, except the vacancy rates compiled by real estate agents, the rental market is the weakest it's been since the last recession, which also happened to be a time when Australia was building a lot of homes for a relatively small population increase.
Pretty much whichever way you cut it, it's difficult to argue that Australia has a serious housing shortage.
For that reason, plus the positive correlation between supply and prices (there is usually surplus construction when prices are going up and insufficient building when prices are falling), it is almost impossible to maintain the argument that a housing shortage is the major reason that Australian home prices have almost doubled over the past decade having more than doubled over the decade before that.
If a housing shortage isn't the problem, a dwelling construction boom isn't going to be the solution to Australia's housing affordability woes.
The real answer probably lies in the level of speculative demand and ability to pay more for properties facilitated by record low interest rates, financial deregulation and investor subsidies such as negative gearing and the capital gains tax discount.
(Source: Australian Broadcasting Corporation)
www.first2move.com.au
Housing supply and demand balance Q4, 2016
Market
Surplus/deficit (Q4, 2016)
Cumulative surplus/deficit (since 1996)
NSW 5,286 33,592
VIC 2,879 52,758
QLD 6,183 29,039
SA 1,708 42,766
WA 4,669 43,782
TAS 232 21,208
NT 638 7,185
ACT 894 12,021
Australia 22,427 235,299
Source: LF Economics analysis of ABS data
Despite excluding the period pre-1996, when Australia's housing stock was growing much more rapidly than its population, LF Economics still finds a dwelling surplus of almost a quarter of a million homes.
Housing surplus grows when prices rise
Not only that, but Philip Soos observed that, over the past two decades, the periods of greatest excess housing supply had occurred while prices were rising, while periods of undersupply coincided with weaker price growth or falling values.
It makes perfect sense. Here's why.
"Rising prices provide incentives to developers and builders to construct supply and offer it to the market," he explained.
"We saw in the 2000s with the United States, Ireland and Spain, they went on absolute building sprees and yet, all the while, their economists were saying high prices were caused in part by shortages and that obviously wasn't the case."
But, despite having co-authored an 800-page economic history of the Australian housing market, Philip Soos is well outside the mainstream of property analysts.
BIS Oxford Economics, on the other hand, is about as mainstream as you can get. The firm is an economic consultant to some of Australia's largest property and building materials firms, which rely on its estimates and forecasts for their business decisions.
Whatever its methodology, BIS Oxford doesn't see a huge national housing oversupply at the moment. Then again, nor does it see much of an undersupply, except perhaps in Sydney.
BIS Oxford Economics housing demand v supply analysis Photo: BIS Oxford Economics finds excess housing supply in all states except NSW and Victoria. (Supplied: BIS Oxford Economics)
The upwardly revised population figures for Melbourne have eradicated the apartment glut BIS Oxford previously thought existed, but not for long if tower blocks keep springing up in and around the CBD at the rate they have been.
And Melbourne's gain was in large part Perth's loss, with WA's population figures revised down by well over 50,000 while Victoria picked up more than 100,000 residents.
That leaves WA with the most oversupplied market on BIS Oxford's forecasts out to 2019, with Queensland looking very risky and every other market except NSW slipping into at least mild oversupply by next year.
Sydney the only capital where housing shortage may exist
It's a conclusion Philip Soos agrees with, even if he differs on the magnitude of the oversupply.
"I would say that Sydney, given that it has the highest rent-to-income ratio and also has the highest rent growth at the moment, that's probably the most supply constrained," he observed.
"Followed by Victoria, which is Melbourne, even though it has the highest cumulative oversupply, because we've got 120,000 flooding into the state every year and most of them are heading towards Melbourne, it's still a pretty thin buffer."
So it's a bubble. Now what?
Regulators finally admit Australia has a property bubble, but is it too late to deflate it without popping it? asks Ian Verrender.
If you don't believe the private sector analysts, then a group of academics from the Australian Housing and Urban Research Institute have reached a similar finding that there is no housing shortage - and they only looked at the last decade, which is when Australia's population growth has been at its highest.
"In 2015, dwelling completions increased the Australian housing stock by 2 per cent and yet again South Korea is the only country that achieved a larger proportionate increase," their paper noted.
"The net of demolition growth in housing stock exceeds population growth in Melbourne, but falls just short of stronger population growth in Perth.
"There remains a healthy margin between expansion of the housing stock and population growth in all the other state capitals and territories except Sydney."
I also called the Housing Industry Association, which once did estimates of the housing supply-demand balance.
But its senior economist said the HIA had given up, precisely because a shortage/surplus result was so heavily dependent on which base year you selected.
He explained that the HIA now watches the rental market, particularly rises and falls in rents, as a timely way to determine whether there is a housing shortage in a particular market.
Weak rental growth indicates no housing shortage
It makes sense because asking rents are generally more responsive to supply-demand imbalances and also because rents, unlike home purchase prices, are not influenced by interest rates and the availability of credit - you don't borrow money to rent a home, how much you will pay depends on your income and how well supplied the market is.
Housing supply v rents Photo: There is a clear correlation between dwelling supply and rents - excess supply leads to weaker rent growth. (ABC/ABS)
On just about every measure, except the vacancy rates compiled by real estate agents, the rental market is the weakest it's been since the last recession, which also happened to be a time when Australia was building a lot of homes for a relatively small population increase.
Pretty much whichever way you cut it, it's difficult to argue that Australia has a serious housing shortage.
For that reason, plus the positive correlation between supply and prices (there is usually surplus construction when prices are going up and insufficient building when prices are falling), it is almost impossible to maintain the argument that a housing shortage is the major reason that Australian home prices have almost doubled over the past decade having more than doubled over the decade before that.
If a housing shortage isn't the problem, a dwelling construction boom isn't going to be the solution to Australia's housing affordability woes.
The real answer probably lies in the level of speculative demand and ability to pay more for properties facilitated by record low interest rates, financial deregulation and investor subsidies such as negative gearing and the capital gains tax discount.
(Source: Australian Broadcasting Corporation)
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