Skip to content

Download as PDF [2,403kB]

Chapter 1 - Introduction



Role of the National Housing Supply Council

The National Housing Supply Council was established in May 2008 to monitor housing demand, supply and affordability in Australia, and to highlight current and potential future gaps between housing supply and demand from would-be home-owners and renters.

The Council will produce an annual State of Supply Report that examines housing supply needs up to 20 years into the future. These reports are intended to provide information that will assist government and industry to improve housing supply.

In this inaugural report, the Council’s focus has been on identifying the national ‘state of play’ on housing supply and demand. The report also includes trends and issues associated with housing affordability, particularly for lower income households and, following consultation with key stakeholders, outlines areas of focus for the Council’s future work program.

There has been no systematic national process for collecting, aggregating and presenting this sort of information since the Indicative Planning Council was discontinued in 1997. As a result, and given the short period since the Council’s establishment in May 2008, this first report aims to establish baseline information from readily available data and proposes key indicators that will be monitored over time.

The report includes information on land supply collected from State and Territory planning agencies. It includes estimates of new dwellings that can be constructed through use of broadhectare (greenfield) land and brownfield, redevelopment, infill or dual-occupancy sites, where jurisdictions have provided this information. Subsequent reports will aim to provide more comprehensive data on land supply for urban residential development.

Providing an annual assessment of the balance between housing demand and supply should contribute to knowledge of the dynamics of the home ownership and rental housing markets and thereby contribute to the development of effective policy and practice responses to access and affordability issues in the public and private sectors.

Box 1.1: The National Housing Supply Council’s Terms of Reference

The National Housing Supply Council will provide an annual State of Supply Report that forecasts and analyses the adequacy of land supply and construction activity to meet demand and improve affordability over a 20-year forecast period.

The State of Supply Report will provide consistent data on trends and forecasts of housing demand and supply at national, State and Territory and, to the extent feasible, smaller scales.

The Council will:

The Council will separately provide relevant policy advice to the Minister for Housing.

The Council’s full Terms of Reference are at Appendix 1.


Context

For many years, Australia was comparatively well served by a housing system comprising home ownership for the majority, long-term public housing leased to lower income households (often with provision to buy if and when household circumstances improved) and private rental housing as a transitional tenure on the path to home ownership. However, long-term structural shifts in the economy, society and housing markets have challenged these traditional foundations. Over time, the combination of economically and demographically induced increases in housing demand, and land supply constrained by urban settlement patterns, has contributed to increases in real house prices in Australia (see Figure 1.1). A mismatch between the distribution of household incomes and house prices is also evident. These trends, exacerbated by the recent prolonged episode of increasing housing costs, together with a dwindling supply of ‘social housing’ (public housing and housing managed by not-for-profit agencies), have resulted in ongoing public concern about housing affordability.

It should be noted that deteriorating housing affordability has not been confined to Australia. In most other economies that are part of the Organisation for Economic Co-operation and Development (OECD), real house prices have fluctuated around an upward trend, at least since 19702.

Figure 1.1: Real house prices, household income, rents and construction costs, Australia, 1972–2008

Description of Figure 1.1

Figure 1.1: Real house prices, household income, rents and construction costs, Australia, 1972–2008

Note: the baseline of 100 is the average of 1972–75.

Source: Adapted from Australian Bureau of Statistics, Reserve Bank of Australia, Real Estate Institute of Australia in: A Richards, ‘Some observations on the cost of housing’, address to 2008 Economic and Social Outlook Conference, The Melbourne Institute of Applied Economic and Social Research, Melbourne, 27 March 2008, accessed 20 January 2009, <www.rba.gov.au/Speeches/2008/sp_so_270308.html>.

Over the past three decades or so, social change and declining affordability have contributed to declining home ownership among younger households, particularly among low to moderate income aspiring first home buyer households seeking modestly priced starter homes.3 Census data show that the home ownership rate (outright owners plus buyers) among households in the 25–39 year old age group fell from 65 per cent in 1981 to 57 per cent in 2006.4 Over the same period, the home ownership rate for households in the younger, 25–34 year old age group fell from 61 per cent to just over 50 per cent.

By 2006–07, in four of the major capitals in Australia, only 30 to 35 per cent of transacted dwellings (houses and apartments) would have been accessible to the median income household in the home-buying (25–39 years) age groups. For Australia as a whole, around 33 per cent of transacted dwellings would have been accessible to households on median income for median young households in 2006–07, compared with a longer run average of around 45 per cent. Accessibility, of course, is much lower for low income households.5

The private rental market is often the forced choice for an increasing number of low- and moderate-income households because of:

Due to the resulting upward pressure on the private rental sector, private renters as well as home buyer households have experienced increasing access and affordability problems.

Low income households have felt the brunt of these pressures. In 1996, for example, 43 per cent of lower income private renters paid more than 30 per cent of their income in meeting their housing costs. By 2006, this proportion had increased to 60 per cent.6

The Council’s Terms of Reference provide that, in considering trends and forecasts of housing demand and supply at national and State and Territory levels, the Council will focus particularly on the factors affecting the supply and affordability of housing for families and other households in the lower half of the income distribution. While the Council is concerned with the efficiency and effectiveness of the market in responding to demand across the income and wealth distribution, the Council has drawn particular attention to the circumstances of more disadvantaged consumers. In any adverse market conditions, it is they who are most likely to miss out.


Factors influencing housing supply and demand: a framework

Figure 1.2 shows the complex set of factors that underpin the relationship between supply and demand, with house prices being the net outcome of the interaction of those various factors.

Figure 1.2: Factors influencing housing supply, demand and affordability

Description of Figure 1.2

 

Figure 1.2: Factors influencing housing supply, demand and affordability

Source: Adapted from Productivity Commission, First home ownership: inquiry report, Productivity Commission, Melbourne, 2004, p. 5, viewed 15 January 2009, <www.pc.gov.au/projects/inquiry/housing/docs/finalreport>.

Added to the mix above are a number of factors that impact on the overall efficiency of the supply side of the housing market, including:

As data are improved and modelling capacity established, the Council’s long-term objective will be to examine systematically the influence of these factors on achieving a well-functioning market—one that responds quickly to changes in demand and enables households to have access to employment and educational opportunities and other services as their needs change.

This report presents demand and supply projections and discusses a number of influences on the responsiveness of supply to changes in demand. It does not, however, present a comprehensive set of influences on supply and does not purport to point to policy priorities to address the gap between demand and supply and its impacts on housing affordability.


Structure of this report

The remainder of this report is structured as follows:

Chapter 2 explores the drivers of underlying and effective demand and presents projections of future underlying demand.

Chapter 3 discusses supply issues, including influences on housing supply, and the outlook for housing production.

Chapter 4 compares the Council’s forecasts of housing demand and supply and identifies particular areas of likely future shortfall.

Chapter 5 examines housing affordability in more detail and explores trends for public and private renters and home ownership, including the availability of affordable supply for ‘key workers’ and other groups.

Chapter 6 highlights the main lessons from the report and outlines how these will shape the Council’s future work and role.


Council projections

The Council’s projections of underlying demand in Chapter 2, and of land and housing supply in Chapter 3, have a 20-year outlook.

In developing and interpreting the projections, the Council drew on the experience of its individual members and the views of key stakeholders to critically review commissioned research on demand and information from states and territories on the land supply outlook.

Long-range forecasting is error-prone at the best of times; it is especially perilous when trends are interrupted or changed as a result of major changes in the economy or society more generally. In ‘normal’ times, predicting the rate of immigration – the major variable affecting underlying demand – rests on contestable assumptions, and the accuracy of the forecasts is largely dependent on those assumptions. At present, Australia and the world at large are in the midst of a major financial crisis, the outcomes of which, including for the housing market, are at best uncertain.

Changing economic circumstances could have major effects on the housing market. Effective demand is the product of factors such as employment, the availability and cost of finance, and expectations of the rate of return from alternative investments. These factors also affect the supply side of the housing market. Forecasts on the supply side are also compromised by the lack of consistent and complete data on land supply in the pipeline (particularly infill land), uncertainty about the rate of conversion from raw land to serviced lots and actual dwellings, and the production capacity of the construction industry.


Guide to methodology

A range of approaches could have been used to produce the demand and supply projections for this report. The methodology used in this report, having regard to the availability and accessibility of information in a short time frame, is based on mediumto long-term trends in construction activity (supply projections) and population growth (demand projections).

Other approaches that have been used for such projections include multisectoral econometric modelling, which estimates relationships between key variables and drivers of market activity and cost; microsimulation modelling, which uses microdata sets to simulate the consequences of policy and programs on producers and consumers behaviour; and GIS modelling, which analyses spatial factors.

As outlined in Chapter 6, the Council’s future work program includes the development of better and more consistent data on the current state of land and housing supply as well as more sophisticated approaches to modelling and projecting changes in demand and supply over time.


Supply and demand data

The data in this report have a number of time reference periods:

The household projections used in this report were developed by Professor McDonald and Dr Temple using the most recent Australian Bureau of Statistics (ABS) population projections, which were released in September 2008 (ABS cat. no. 3222.0). This ABS publication provides an estimate for Australia’s population of 20.7 million people as at June 2006, compared with the 2006 Census figure of 19.9 million people. It is likely that some of this discrepancy relates to under-enumeration in the Census.

The ABS has also estimated that there were around 250,000 dwellings, or 2.9 per cent of all dwellings missed by the 2006 Census.7 Where possible, the information in this report has been based on the most recently released figures. However, for some of the analysis, such as the affordability assessment, census data has been used as it provides much more detailed information on the circumstances of households.

In future reports, the Council intends to examine supply and demand in various ‘submarkets’ or ‘sectors’ – such as aged persons’ housing, the rental apartment market and the market for medium-density housing. Although somewhat artificial and overlapping in concept, they are worthy of examination because of their looming importance and the different influences upon them.

There is a particular housing ‘sector’ – housing for Indigenous Australians – that we have not examined separately in this report despite this being an oft-cited disadvantaged sector in which supply shortages, poor housing quality, access difficulties and overcrowding are well documented. While ‘mainstream’ housing options (the private market and public housing) are major suppliers of housing for Aboriginal and Torres Strait Islander peoples, there is also a range of Indigenous-specific housing options and providers that operate in comparative isolation from other services, especially but not exclusively in remote areas. The Council is conscious of its lack of expertise in this sector, the non-market character of some areas and forms of provision, and the fact that Indigenous housing has been the subject of intensive policy focus at Australian Government and State levels. Our report covers Indigenous housing only to the extent that Indigenous people contribute to the composition of the housing market in general, Indigenous-specific housing is included in social housing numbers and Indigenous people are a significant element of the low income population.8

2. Organisation for Economic Co-operation and Development, OECD Economic Outlook, Issue No. 78, December 2005, Chapter 3: Recent house price developments: the role of fundamentals, OECD, Paris, p. 125.

3. J Yates, Housing implications of social, spatial and structural change, Australian Housing and Urban Research Institute, Final Report no. 22, AHURI, Canberra, July 2002, p. 79, and M Rodrigues, First home buyers in Australia, Treasury Economic Roundup, Summer 2003–04, p. 62.

4. J Yates, H Kendig et al., Sustaining fair shares: the Australian housing system and intergenerational sustainability, Australian Housing and Urban Research Institute Final Report no. 111, February 2008, p. 32, Table 3.2: ‘Current and projected age-specific home ownership rates’.

5. These estimates are taken from an address given by the Head of the Economic Analysis Research Department at the Reserve Bank of Australia (A Richards, ‘Some observations on the cost of housing’, address to 2008 Economic and Social Outlook Conference, The Melbourne Institute of Applied Economic and Social Research, Melbourne, 27 March 2008, accessed 20 January 2009, <www.rba.gov.au/Speeches/2008/>). They are based on regional estimates of median gross household income for 25–39 year olds from ABS survey data, assumptions of a 10 per cent deposit, borrowing capacity set by representative interest rates, and a repayment capacity based on 30 per cent of gross household income.

6. National Housing Supply Council estimates based on Australian Bureau of Statistics, Survey of Income and Housing: CURF on CD-ROM/RADL, 2005–06 (Second Edition), cat. no. 6541.0.30.001, ABS, Canberra, 2008.

7. Australian Bureau of Statistics, Census of Population and Housing – Details of Undercount, ABS, cat. no. 2940.0, ABS, Canberra, August, 2006.

8. In November 2008, the Council of Australian Governments agreed on a new 10-year National Partnership on Remote Indigenous Housing. This partnership will deliver a significant reform package through the provision of an additional $1.94 billion of Commonwealth funding to address overcrowding, homelessness, poor housing conditions and the severe housing shortage in remote Indigenous communities. This brings total investment in remote Indigenous housing to $5.5 billion over 10 years. Key elements of the new reform package are the provision of new housing, major repairs and upgrades of existing houses, an ongoing repairs and maintenance program, and standardised tenancy management and support in line with general public housing principles.
COAG further agreed to a National Indigenous Reform Agreement (NIRA) to close the gap in Indigenous disadvantage with reform proposals to be developed in 2009 to coordinate delivery of services to Indigenous Australians in education, employment, health and housing.
Recent information on Indigenous housing can be obtained from the following sources:
Australian Institute of Health and Welfare, Indigenous housing indicators 2005–2006, Indigenous housing series no. 2, cat. no. HOU 168, AIHW, Canberra, 2007.
S Long, P Memmott, Paul & T Seelig, An audit and review of Australian Indigenous housing research, Australian Housing and Urban Research Institute, Final Report no. 102, AHURI, Queensland Research Centre, July 2007.

Return to top

Chapter 2 - Demand

Executive Summary