Supply not meeting population growth

NEW housing stock in Sydney and Perth are failing to match population growth, according to research from the Australian Housing and Urban Research Institute (AHURI) and the Bankwest Curtin Economics Centre (BCEC).

BCEC deputy director Professor Rachel Ong said while national growth in Australia’s housing supply has kept pace with population growth over the last 10 years, the situation varies and picture is very different across different capital cities.
“Increases in Perth and Sydney’s housing stock over the past 10 years have been insufficient to match the increase in their growing populations, with supply-side barriers more acute in Sydney than Perth,” she said. “Despite a relatively lower increase in its population, Sydney’s housing stock growth has failed to match population growth. It would seem that supply-side barriers are more acute in Sydney than Perth,”

The report found an increase in the level of real housing prices by 1% produced an estimated 4.7% increase in new housing supply and units with a 1% price increase yields a 3.9% increase in supply.

Ong said this level of price responsiveness translates into a very small increase in the total number of houses and units within Australia, which does little to keep up with demand pressures.
Ong noted that most of the new housing supply is not constructed in areas where it is most needed, with housing supply growth mainly limited to mid-to-high price segments.
She said targeted government intervention is needed to ensure an adequate supply of affordable housing.
“Job opportunities and population growth pressures are greater in urban areas than regional areas. However, meeting population growth pressures through new house supply in urban areas is challenging due to existing land use.
“The supply of units appears to be higher (all else equal) in already developed areas. Therefore, measures that further promote the construction of units could prove an effective pathway to easing price pressures and expanding affordable housing opportunities.
“The impact of planning regulations on housing supply responsiveness is modest, though there is some evidence that government planning policies that promote housing growth are leading to an increase in housing supply,” Ong continued.

The report also finds that the issue of housing affordability is more nuanced than previously thought, with most new housing in the nation concentrated in mid-to-high price market segments.
“We’d normally expect to see a trickle-down effect, where building higher-value homes leads to the opening up of lower-value homes for those on lower incomes. Our research indicates this isn’t the case, meaning an increase in housing supply is not leading to better housing affordability,” Professor Ong said.
“This indicates that a broader policy response is needed to address the structural impediments that weaken the ‘trickle down’ impact on new housing supply. There is a real need for targeted government intervention, including measures that improve financial incentives for developers to build at the lower end of the housing market.”
A positive finding from the report is that the supply of units is more likely to be concentrated in job-rich areas, with more than 50% of new units built in the highest job density areas in Australia.
“A likely result of that will be shorter commuting time to work, which offers an important boost to productivity,” Ong said.

Australian Property Journal

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