Housing shortage a furphy we should not accept blindly

By Terry Ryder, 26th January 2012

My last column for 2011 analysed “the Year of the Furphy”. Fittingly, the year ended with publication of a report that advanced one of great furphies of Australian real estate, the housing shortage.

The National Housing Supply Council published its 2011 State of Supply report just before Christmas - which claimed, yet again, that we’re not building enough dwellings.

Apparently we have an accumulation of 215,000 households who want to buy new houses but can’t get them.

I keep asking this question and still haven’t had an answer: where are the 215,000 households who can’t get the houses they want? Where are these people living?

In 2011 there were record numbers of homes for sale with prices generally down – but there were few buyers. Why did the un-housed 215,000 not take advantage of this opportunity to buy homes at low prices?

Builders are out there putting up new houses but are struggling to find buyers. Some major developers are engaging teams of marketers in China and other parts of Asia to sell their new house-and-land packages for which there are few Australian buyers.

Why are building approvals at such low levels if we have a shortage so serious that it’s reported to as a “crisis”? Building approvals are generated by demand from buyers for new dwellings. Why do we not have record demand if there is a shortage of 215,000 dwellings?

Developer lobby groups like Master Builders Association, the Urban Taskforce, the Housing Industry Association and the Property Council of Australia keep bemoaning the lack of new construction.

I’m still awaiting their explanation as to why their members aren’t out there building to satisfy the pent-up demand. The NHSC says this pent-up demand numbers 215,000 and will reach 600,000 in 2030.

Certainly there’s no shortage of land to build new housing estates. Perth, Brisbane, Adelaide and Melbourne all have vast areas available. I’m not so sure about Sydney.

You see, I think surplus is a bigger problem than shortage. Melbourne presents the most compelling example.

The inner-city areas of Melbourne are moving into a period of gross over-supply of apartments. Over 27,000 new units are in the pipeline and developers are selling half of their off-the-plan deals overseas investors.

There’s a similar problem in the house-and-land market. Wyndham City, the municipality in the south-west of Melbourne which is now a national population growth leader, has a significant over-supply of new dwellings.

The vacancy rate in Werribee is 8 per cent while in neighbouring Wyndham Vale it’s 11 per cent. Developers have teams of marketers in Asia selling house-and-land packages to investors because they can’t find local buyers.

Wherever the 215,000 un-housed households are, they certainly are not in the Melbourne area.

The Wyndham City situation means that the two great population growth municipalities in Australia, the other being Gold Coast City, have big surpluses of dwellings.

The Gold Coast is the standout among a series of high-population-growth coastal regions in Queensland with similar problems. The three worst performers on capital growth in the past five years are the Gold Coast, the Sunshine Coast and the Fraser Coast – which coincidentally are the three leading population growth areas.

Developers seeking to exploit the high population growth have built too many new apartments and house-and-land packages.

So, wherever the un-housed 559,000 (215,000 households averaging 2.6 people) are hiding, it’s not anywhere within cooee of coastal Queensland.

Where are they?

Increasing numbers of people are asking similar questions. They include Brisbane analyst Michael Matusik and Andrew Wilkinson from Curtin University in Perth.

Sadly, the people who should be asking these questions, journalists, have simply presented the NHSC report as fact. I’ve seen dozens of articles around the nation inspired by the NHSC press release and every single one of them simply presented the press release. No questions asked.

We’re getting to the point where newspapers won’t need to hire journalists at all – they can simply fill up the spaces between the ads with press releases.

I think the methodology used by the NHSC is seriously flawed. It hasn’t kept up with demographic changes, including the increasing size of households (a reversal of recent trends) and the source of overseas migrants.

Their methodology is coming up with results that don’t match the facts. It’s reporting rising “underlying demand” for new housing at a time when our population growth is sharply diminishing (it’s dropped from 2.1 per cent to 1.4 per cent in the past two years).

It’s the nonsense you get when people construct models on computers without ever looking out the window and noticing that life beyond their offices is contradicting what their theories are telling them.

And it’s misleading investors into buying real estate with the expectation of strong price and rental growth, something you would expect when there’s an under-supply and strong “underlying demand” - but which we haven’t had for the past two years.

Matusik mounts a convincing argument that we’re now building too much new housing stock. Wilkinson suggests any housing shortage has been solved by the recent increase in the average size of households.

We need to challenge what the NHSC is saying, rather than mildly accepting it as fact.

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