Don’t blame high prices on housing shortfall

Undersupply can’t be blamed for property prices being unaffordable as construction is already keeping up with population growth, new research has found.

In an analysis conducted by buyer’s agency Propertyology, national supply of residential dwelling construction over two three-year periods is already at record levels.

Head of property market research Simon Pressley said that the numbers speak for themselves.

“Over the past three calendar years, 676,067 new residential dwellings were approved compared to 461,383 for the three years ending 2008," he said. 

"To put context around the record volume of new housing in the national pipeline, Australia’s population growth over each of those three-year blocks was 1.063 million and 1.164 million, respectively.

"In other words, Australia’s population growth was about 100,000 less; however, we approved 200,000 more dwellings."

Pressley said that some commentators had confused the strong performance of Sydney and Melbourne's property markets with housing undersupply.

But he said the evidence does not support the sentiment.

“For instance, comparing new supply and population growth of 2016 to 2008 when Sydney’s median house price only increased by 0.6 per cent, population growth was the same but more than twice as many new dwellings were supplied in 2016.

"The thing is, the stronger economy and consumer sentiment which comes with it – at a time when interest rates are at a record low – increases buyer activity to levels over and above the underlying demand of population growth.

"We only need to look at cities like Brisbane, Adelaide and Perth to see what can happen when consumer sentiment isn’t as strong while supply levels are high."

Moving parts 

Mr Pressley said that strong house price growth in Sydney and Melbourne was due to a number of factors, but a lack of supply was not one of them.

He also said there has been “extremely” modest rental growth in capital cities over the past five calendar years.

“If there was such a dire shortage of housing, rents would be increasing significantly every time a lease expired; however, the evidence suggests nominal movement in rents for five years,” said Mr Pressley.

But he did say there are a number of regional cities across the country where the housing supply pipeline is “significantly tighter” than several capital cities.

“A more controlled housing supply pipeline and affordability are partly why we’ve  been actively investing in several regional cities for a while now,” he said.

A distinct trend in residential construction in Australia's bigger cities since 2013 was that the majority of dwellings being built were units.

Pressley said that 10 years ago, three out of 10 properties approved in Australia were apartments, whereas today it is one out of two.

"During the 2016 calendar year, 80 per cent of new dwellings approved in Canberra were apartments – it was 70 per cent in Sydney, 58 per cent in Brisbane, and 54 per cent in Melbourne.

"It was only 13 per cent in Hobart where housing supply volumes maintained its status quo over the past few years, while factors on the demand side of the equation have all improved.

"Out of all of the capital cities, the official data suggests that Hobart will have the tightest level of supply over the next few years.”

My Pressley said that, for capital growth and rental yield, Hobart was Australia’s best performing capital city for the year ending June 2017, and his research suggests it’s likely to “hold this mantle for a while yet".