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Housing shortage, what housing shortage?
Posted by Andrew on Dec 22, 2011 in Economics and Finance | 0 comments
Another year another report on housing shortages (heck another day another report). This week the Housing Shortage National Housing Supply Council released their State of Supply Report.
And, unlike many other ‘reports’ this one is made by some pretty smart (and objective observers). Not to suggest that the many press releases and associated findings from various
industry bodies aren’t correct – but there is a degree of scepticism when reading a report claiming the need to build more houses from an organisation whose job it is to represent the cause of building more hou
Amongst the report’s key findings are:
- Despite weaker market conditions, the housing shortage continues to widen. (This sounds counter to every economic principle known to man – but we’ll get back to this)
- Underlying demand for housing grew by 159,200
- Net additional housing supply up by 131,000 dwellings
- The gap between these measures of underlying demand and supply increased by
- 28,200 to 186,800 over 2009-10
- The largest housing shortfalls in numerical terms are in NSW and Queensland, with shortfalls of 73,700 and 61,900 respectively. (Hmm, the state that forms the first port of call for migrants, and the other state in the resource boom. Didn’t see that coming)
- Data from the states and from the Council’s analysis of recent building approvals data suggest that supply is likely to fall short of the medium-growth projections (meaning a larger gap) in the short term.
- Projections, based on trend building rates and household growth, suggest that this gap could increase to over 640,000 over the next 20 years
- This growing gap indicates that housing production needs to lift well above trend to reduce the likelihood that housing shortages and poor affordability impact adversely on economic growth and standards of living.
So, what does this mean? Well we aren’t building enough residences (note we don’t say houses). The problem is getting worse and it is happening in the states that are growing the fastest (well duh)
But what about the paradox of weaker market vs a shortage. This is the bit the cynics seem to focus on, it doesn’t make sense, or does it? A residence is not a consumer good – it is a major capital outlay which serves as a superior substitute for renting a property. It also is not a choice purely of the purchaser. There is a mathematical formula for determining how much a person can pay (which is rigorously employed by lending institutions), compounded by a requirement for a sizeable deposit (which will take you 5.7 years if you live in NSW – a little parting gift from Kristina, Nathan, Morris and Bob). Add to the fact that there was some serious yield compression in the last boom (i.e. either rents were too low or prices too high. Or as Homer Simpson may say, a little from column A and a little from column B….). So when you put overpriced assets, black and white borrowing requirements together that doesn’t mean there isn’t a shortage. Add in the fact that the continuing global economic uncertainty has contributed to the current sluggish housing market conditions but is masking the true extent of the housing undersupply challenge.
There are real drivers. Firstly, the ongoing financial crisis makes it very difficult for developers and builders to finance projects. What makes it worse is that they very nature of stock which is most needed (units and semi-detached) are the most expensive to build and difficult to finance. A builder can downsize their workforce and cut from 200 down to 100 starts when it comes to houses. It is much harder to build half an apartment complex!
And the solutions presented by government aren’t as helpful as they like to think. There is often a degree of resistance to increasing housing supply at the state planning level (the arch champion of this being Premier Bob Carr); however this reaches a natural breaking point as the population in your municipality, region or state inexorably creeps up. This leaves policy makers looking like King Canute. What then is the solution? A bold announcement, usually a major land release on the population fringe. Unfortuantely, whilst this sounds like a bold and decisive move, it doesn’t make up for a lack of progress in the following areas:
- Infrastructure development (It is much easier and less controversial to build a road in the middle of nowhere than on main street)
- Angelina Jolie: OK I cheated. If I had said Planning Policy Reform you would have skipped ahead wouldn’t you? Doesn’t mean its not important.
- Market distortion. No, not he endless parade of new home buyer incentives. Inefficient state government duties. Stamp duty doesn’t count as a deposit. Remember 5.7 years NSW?
So in summary, well a wise man once said that a problem well stated is a problem half solved. We should be grateful that the problem has been identified, maybe the next step is identifying some solutions?
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