We've been over-building for years

By Michael Matusik, 20th September 2012

So, does Australia have too few, too many, or is the situation just about right?

I am talking about new dwellings.

I have been arguing for some time that one of the biggest real estate myths in this country is that the new housing market is undersupplied; and often this situation is described with words such as “massive”, “chronic” or “enormous”.

But is it true?  As followers of the Matusik Missive know, I have tried to prove that it is false and with, for mine, with quite a degree of finesse.  Yeah, like a bull in a china shop.

Anyway, each year I like to go back and check the numbers. And last week’s annual check-up has found that Australia continues to build more dwellings than we need. A few years back – in 2008/09 – not enough new homes were being built, but in recent years, and despite the constant calls from the building industry for stimulus to help create even more new dwellings, we have been building too many.

In the 2009 financial year, Australia needed to build 167,000 new dwellings, yet only 131,000 or thereabouts were commenced.  However, in 2010 (all years in this post are financial ones), the supply-demand balance reversed with just 121,000 new homes needed, yet 167,000 actually commenced construction. During 2011 the industry continued to build far more homes than what was actually needed, to the tune of about 47,650 too many.

The good news is that the rate of over-building has slowed down over the last 12 months, with 137,000 new dwellings needed during 2011/12 and with 139,000 actually supplied.

However, dwelling supply (we are talking about actual commencements here and not approvals) is cumulative and since the GFC, Australia has built about 60,000 more new dwellings than it really needed.

Nationwide, we are currently over-supplied with new digs to the tune of about five months, based on current underlying demand.  In short, we could, as a nation, stop building for several months and still have enough new homes to fulfil our needs.

But of course, there are always swings and roundabouts.

Several states and territories are under-supplied, some are chronically over-supplied – I just had to get that in – whilst others have way too much stock.

Major oversupplies now exist in Victoria, South Australia, Tasmania and the ACT.

Since 2009, Victoria has created 69,000 (yes 69,000 – that’s five digits with a six at the front!) too many new dwellings. This represents about a two-year over-supply based on the current annual underlying demand for 34,000 new dwellings across the state.

South Australia has built 18,000 too many new homes, but with a need to just build about 6,000 new dwellings per year, South Australia really shouldn’t need to build a new home for years, well close to three, in fact.

There are 6,000 too many dwellings built or being built in Canberra.  This equates to 30 months of supply.  And poor Tassie has also overbuilt and also in the high 4,000 range. But Tasmania’s situation is further exacerbated by its declining population growth. Based on a continuation of last year’s paltry population increase of 1,000 people, Tassie’s 4,800 overbuild represents close to nine years of demand. Now might be a good time to steal a new property on the Apple Isle.

The Northern Territory is now also oversupplied, with 350 too many dwellings created in recent years. The demand for new homes in the territory is limited (at about 800 per annum), so this paltry 350 over-hang represents six month’s demand.

In stark contrast, New South Wales hasn’t been building enough new stock – no surprise there – but the under-supply is to the tune of 13,000 or about five months of current demand.

Western Australia is also under-supplied by about 23,000 dwellings at present, which equates to about an nine-month demand.

Finally, Queensland has a new dwelling short-fall of 2,800 or two weeks of undersupply.

Last year’s statistics, however, suggest that Queensland is now heading towards a massive under-supply, with 33,000 new dwellings needed during 2012, yet just 26,000 supplied – an under-supply in the tune of about 20%.

Let’s hope the Newman Government’s recent $15,000 first-home buyers grant for new construction kicks some arse. But for mine, it will not deliver the spanking it was intended to.

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Michael Matusik

Michael Matusik is a leader in residential market analysis and property advice in Australia.

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