This housing shortage can only get worse from here
I wonder if people really understand how entrenched the housing shortage is right now.
People say, oh we’ll just build more houses. It doesn’t work like that. It has never worked like that.
And the truth is that the suppl-demand balance is going backwards fast. We’re already short 120,000 homes according to NAB economists:
A pandemic shift to smaller households has created a structural shortfall of 120,000 homes and is making the housing crisis worse, a reality unlikely to change any time soon, say NAB economists.
While booming post-pandemic migration is outstripping new dwellings by a record level, NAB head of market economics Tapas Strickland said Australia was starting from behind even before the borders reopened.
Average household sizes slumped to about 2.5 people per dwelling between 2020 and 2022 as people chose to move out of family homes and share houses and either live alone or with partners, according to the Reserve Bank of Australia.
The same RBA research suggested the shift increased total demand for dwellings by about 120,000 in two years – a structural shift that will be difficult to compensate for without a significant uptick in construction.
So that’s where we’re starting from. We were in a housing shortage already, then the pandemic hit, and people turned bedrooms into home offices, and the average number of people per household fell.
It was like the housing market, which was already stretched, suddenly lost 120,000 homes – not far off a year’s worth of net additions to the housing stock.
So that’s where we were.
But then what about where we’re going?
Where we’re going is even worse. The population is surging on the back of record immigration, just as housing starts are collapsing:
“The pressure in the housing market comes from a combination of the rapid rebuild in population – the level of the population is back to where a pre-pandemic trend would have pegged the population to be – and pandemic-induced changes in housing preferences which saw a decline in average household size,” Mr Strickland said in a note to clients on Wednesday.
Australia’s population grew by 600,000 in the past year, at the same time sluggish dwelling approvals hit 167,000, below 2019 levels. Mr Strickland said the surge had “far outpaced” the market’s ability to keep pace.
“The ratio of population per new dwelling approval is running at 3.6, the worst in the history of the series that dates back to 1984,” he said.
Take a look at the chart. It’s popped. Worst since 1984.
And somehow we’re supposed to build our way out of this mess?
You’re dreaming.
JG.