It’s hard to pick exactly how big the housing shortage is right now, but looking ahead, it’s only going one direction – and that means rising prices as far as the eye can see.
I’ve been saying for a while that Australia just hasn’t been building enough houses. Because new supply’s been falling each year over the past decade, a housing shortage has opened up, and this is perhaps the dominant factor driving the current boom in prices.
Not enough houses = people bidding up the prices of those that exists. Economics 101.
It’s on full display in Sydney and also in Melbourne. It’s not as stark in the other capitals, but mostly because immigration hasn’t boomed the way it has in Sydney and Melbourne.
And that’s been one of the key drivers – an unexpected surge in immigration has helped pump the population numbers. Prior to the GFC, annual immigration averaged less than 150,000 a year. Following the GFC it jumped to over 200,000 a year.
That’s a big difference.
Economics drives migration. When our economy is out-performing the rest of the world, Aussies stay home rather than work overseas, and more foreigners come to live here – driven along by a demand for skilled labour.
And the vast majority of immigrants tend to land and settle in either Sydney or Melbourne. And that’s why I reckon we’re looking at major housing booms in Sydney and Melbourne right now, with less evidence of heat in the other capitals.
So the question then is, how big is the housing shortage, and how long will it last?
Unfortunately, there’s no clear way to pin this down, and there are a lot of fungible factors.
Before it was disbanded, the National Housing Supply Council argued that there was a major shortage in Australia. They were basing this off a measure that ANZ used to use to gauge the demand/supply balance.
It was useful in the sense that it tracked population inflows and new housing supply, but it picked the year 2000 as an arbitrary reference point. As a result, you could only say whether the shortage was bigger or smaller than it was in the year 2000. You still couldn’t get a feel for how out of whack the market was.
In fact, I’d probably argue that there was already a shortage building in Sydney in the year 2000. Since then, as the numbers show, it’s only gotten worse.
And from here, it’s only getting worse still.
Sydney and Melbourne are growing rapidly. Melbourne is pipped to get close to 8 million by the middle of the century. Sydney is looking for 7 million.
That’s pretty solid growth.
And all those people will need somewhere to live.
The NSW government has done its sums. Over the medium term, they reckon there’ll be an extra 2 million people by 2031. 2 million in just 16 years.
They also reckon they’ll need an extra 660,000 homes to house all these people.
Well, let’s put that in perspective. What they’re saying is that they’ll need about 40,000 new homes a year.
But how likely’s that? In recent years, home building rates have dipped as low as 10-15,000 a year. 20-25,0000 is considered a good year.
This chart here tracks House and Unit completions in NSW. Since 1984, we’ve averaged about 15,000 new homes a year. But we’ve been below even that meagre average since the start of 2005.
So 40,000 a year would be bumper, almost off the charts.
To do it even once before the decade is out would be noteworthy, almost incredible. But to do it every year for the next 16 years…
Forget it.
Just to show what that might look like, and just to make the point….
If that were a realistic scenario, I’d be bailing out of property itself and sinking everything I had into the stocks of builders and brick manufacturers.
But it’s never going to happen.
And part of the reason is that just as there’s more and more demand for new housing, it’s going to be more and more difficult to bring new houses to the market. Greenfield land on the city fringes is already starting to dry up, and NIMBY resistance to urban consolidation and greater use of apartments in the inner cities is going to block that avenue too.
The recently released Plan Melbourne pledged to build 1.6 million new homes by 2051, and two-thirds of them apartments. That’s an admirable target, but I haven’t seen a politician yet that’s been able to convince vocal and well-resourced inner-city residents to give up their quiet leafy lifestyles in return for more apartment blocks and town houses in their neighbourhood.
The Sydney plan for example, is asking the inner city LGA of Leichardt to build 75 new homes a year. Given Leichardt is pretty much built out, that means converting say, about 20 free standing homes a year into a block of units, say.
Every year.
It won’t be long before that starts to ire the locals.
But the irony is that a lot of people argue that even 75 a year doesn’t go far enough, and we’ll need a lot more from our inner cities.
For my money, unless there’s some radical seismic shift in housing and land policy, or in our attitudes to housing, I can’t see how we’re going to build enough homes to house everybody.
And so that, pretty much locks in a shortage as far as the eye can see.
And as long as there’s a shortage, there’s rising prices
Economics 101.
Jarad says
The next 15 years are going to be seriously interesting to watch and there will be opportunities everywhere in Sydney and Melbourne.
Chris says
I am building duplexes that will be ready to sell January 2015 I am thinking of selling one off the plan to take advantage of the housing boom
Mary says
Hi Jon. Where do you see affordable housing fitting into this picture?
Ben says
Jon, totally agree – the numbers speak for themselves. But I would love to know your opinion on where these people will live? Sure, prices will rise, and suburbs will not allow many high rises – but there will still be people who need homes. Are we looking at slums and regional development? Will they curtail immigration?
Rick says
Where to find lands to build on that would still keep the home affordable to buy ??…that’s where I’d put my money atm.
pisces says
I feel this is a rather innacuate article, despite the “numbers”. Having recently travelled around quite a bit of country Victoria and NSW, there’s a very different story being told, there and in regional areas of WA, Qld and Tassie too. While you’re talking about housing shortages – it’s not exactly true. There are literally thousands of homes, abandoned and empty across Australia, but with the systematic destruction of manufacturing by many successive governments, the rural areas are being abandoned, in favour of the big cities.
If there are so many new migrants looking for homes, perhaps one of the requirements should be that they are to settle outside of the bulging capitals and take their skills and trades into the country areas, revitalise the rural economies, and reduce the infrastructure burdens on our already challenged capital cities.
Rose says
Good solid homes are going to ruin on primary production land across SA also, as my state laws do not permit them to be rented if a new home is built to replace a house out grown on the same land title. I have seen abandoned houses with NOT for RENT signs painted on them as the demand is there. Sometimes the old house can be subdivided off but this is not always practical. No income from the house therefore no maintenance/upgrades and a ruin in the making.
David H says
If there was a severe shortage I would be expecting rental incomes to be driven up. That isn’t what I am observing in my 4 properties in greater Brisbane with different agents.
Tania Questel says
That may be why some people are predicting Brisbane property prices to rise, as housing in Sydney and Melbourne dry up for locals.
Indrek says
Hey Pisces. I reckon you are spot on. I come from the land, a land that is getting abandoned more and more because we as a nation keeps selling the “farm” to foreigners who then do their own thing. I can’t see immigration slowing down, but imagine if we could get those people who come off a harsh environment and persecution being given land “out there” to do your best, they would be over the moon. It’s amazing how people develop an area. My grand folks got shipped out to sunny uptown Siberia in the 40’s. Look at the map now and you will see how these people HAD TO develop the land to survive. Different story here in Oz of course, but think if immigration spent money in locating the migrants (not all obviously) to country towns, a doctor would arrive, perhaps even a bank (ha) the tiny CBD would foster and we all would add value to an otherwise deserted piece of land. The problem….the pollies haven’t got the balls to be visionaries. Their game is to stay in office for that period of time to qualify for that golden egg pension.
Julie DeBondt-Barker says
As a Buyers Agent in Melbourne….there seems to be plenty of homes out there. A disturbing amount of small, cheaply built apartments that only attract students and foreign investors. Take a walk in Melbourne CBD and you will know that we live in Austral-Asia. This is fine, but somebody needs to be planning. The outer areas of building and the new suburbs simply do not attract these people. They are filiar with and comfortable with high density living. Good luck getting them to move to regional areas. And if u do know of somebody wanting a big old house with character, my 5 bedroom home in Ballarat has been vacant for 6 months! No easy 101 answer here….. JDB
Peter says
Indrek you are a visionary…… and a realist to boot.
Ever thought of a career in politics ??? ….nah too honest for that.
Julian says
Politicians wont and shouldnt force immigrants to live in rural areas because in this country we value the rights for people to live where they want and self determine their own lives without the interference of government. Immigrants wont live there because rural australia is a tired mono-culture centred around the sanctioned abuse of alcohol, and offers very little in the way of vibrancy of life, education, leisure activities or possibilities for work. That is why they live in the cities, like most australians. I love the country, and wished I could live there in a slower simpler way. But the country needs to fix itself up, and make itself a more appealing place for all, before you see any growth of regional areas.
Scott says
Seems to me that as opitunitys go this one could bring our economy
Back on track if managed correctly and take the strain of the rest of us
Set up as sort turn housing solution build with the intent to sell in
Five or ten years then sell at just below market to first home Byers
I think this would have been a better way of stimulating our economy
As it could be targeted at areas that need the jobs
Then regain our tax money
Three birds with one stone
las sal says
Lucky for us, John, we do read and hear different opinions from other resources. Maybe you could, as well.
http://www.propertyobserver.com.au/forward-planning/advice-and-hot-topics/32743-biggest-issue-in-real-estate-is-not-shortage-it-s-the-opposite.html?utm_source=Property+Observer+List&utm_campaign=17636a49c6-26_June_2014&utm_medium=email&utm_term=0_a523fbfccb-17636a49c6-245388285
Anna says
Thanks John, based on your article, would you say I should buy investment property in Sydney, not Brisbane – am I right? I’ve been thinking about this for long, would much appreciate your (or other savvy investors) recommendation on this. Many thanks!
Andy says
Where do you get your rubbish information? NSW dwelling completions is around 32,000 a year, peaking at 56,000 just before 2000. Nationally 140k dwellings completed….Sydney is projecting additional 661,000 households by 2031. Looks like NSW capacity to produce dwelling base on need is sweet:)