Over the past decade house prices have risen sharply, reflecting the fact that the supply of housing has not kept pace with demand. At the same time, rental vacancy rates are improving but remain low (see Figure 1) and more households are in housing stress. 1
Figure 1: Average quarterly vacancy rate
Source: REIA 'Real Estate Market Facts—June Quarter 2009', p. 8
One of the key levers for governments to improve housing affordability is increasing the supply of housing (or, at least, stimulating the conditions for greater supply). As a result, the Council of Australian Governments (COAG) has introduced a range of housing and planning reform measures, including increasing the supply of social and affordable rental housing.
As part of the reform agenda, COAG established the National Affordable Housing Agreement framework for all areas of government to work together to improve housing affordability and improve homelessness outcomes. The National Housing Supply Council, as part of this framework, will build a national evidence base on land supply. The council has also been tasked with providing advice to government on a 20 year horizon on factors affecting the supply of housing. This will include the effects of an ageing population, internal and overseas migration, family separation, skill shortages and planning delays.
The council's first State of Supply Report 2008 was released in March 2009, outlining its demand and supply projections to 2028. The second State of Supply Report will be available in March 2010.
Key findings of the council's first report
The State of Supply Report 2008 focused on:
- projections of underlying demand and of land and housing supply from 2008 to 2028
- the gap between housing demand and supply, with particular attention on consequential affordability issues for lower income households
- a number of current influences on supply and demand, as well as the need for research to better understand how these impact on the housing market
- discussion of data collection and methodology, including the need for more sophisticated modelling and improved data collection and analysis, particularly on land supply for residential development.
Demand for housing
The State of Supply Report 2008 demand projections demonstrated that present levels of dwelling production are not high enough to meet Australia's emerging housing needs. Projections commissioned from the Australian Demographic and Social Research Institute (ADSRI) 2 found that underlying demand for dwellings would grow by about 3 million over the period 2008 to 2028, with a net increase of 2.7 million dwellings expected over the period 2008 to 2028. 3
Supply of housing
New supply in any given year is primarily the result of development planning and approval processes in previous years. So the projection of future supply is complex and not a simple addition of all the elements.
Two methods were used to estimate the future supply of housing in the report. They were:
- the trend in growth of aggregate housing supply since 1980
- information provided to the council by state and territory planning agencies on the land and dwelling supply pipeline in major cities.
As a starting point for the projections of supply, the stock of private dwellings in Australia was estimated to be 8,860,000 in June 2008. The following supply projections of construction activity are based on the trend line for Australian Bureau of Statistics (ABS) data on completions (less demolitions) over the period 1 July 1980 to 31 December 2007. 4 Figure 2 shows that 142,000 dwellings are projected to be completed by 2027–28.
Figure 2: Projected dwelling yield. 5
These estimates are affected by demolitions of housing stock and infill development (that is, the development of housing on an existing block that contributes to the supply of housing); as such, the council will revise its supply projections in future reports as well as refining its methodology.
The demand/supply gap
The housing shortfall in 2008 was estimated at 85,000 dwellings and was based on the incidence of homelessness and level of vacancy rates in the private rental market. A unique feature of the 2008 State of Supply Report was the projection of this housing shortfall to 2028. Based on the assumption of net overseas migration of 180,000 each year, the shortfall would rise to 431,000 dwellings, if the market did not respond with additional supply. It is important to note that these projections present a view of the world based on current trends rather than provide an indefinite view of the future.
Affordability
One of the major consequences of demand/supply gaps (discussed above) is higher house prices and rent levels, if supply remains relatively fixed. At the moment, the gap between demand and supply (particularly at the lower end of the rental market), leads to increased levels of housing stress.
The 2008 State of Supply Report found:
- Housing affordability for first home buyers and private renters declined over the decade to 2008.
- In 2005–06, there were 280,000 home buyers in so-called 'housing stress'. Of these 131,000 had housing costs that exceeded 50 per cent of their household income.
- In every state capital, vacancy rates in the private rental market have been lower than 3 per cent since 2005, and real rents have increased dramatically in the past two years.
More commentary about affordability and updated findings will be available in the 2010 State of Supply Report.
The 2010 State of Supply Report
The 2nd State of Supply Report (2010) will not only update demand and supply projections and indicators from 2008 as well as the evidence on affordability, but will also focus on topical housing market issues. For instance, the 2010 report will consider the implications of the global financial crisis for the housing market.
Please contact the National Housing Supply Council Secretariat on tel (02) 6102 7340 to secure a copy of the 2010 State of Supply Report.
A copy of the 2008 State of Supply Report can be found on the FaHCSIA website.