Chapter 6 - Conclusions
Key findings are summarised in the Executive Summary, the commencement of each chapter and reinforced in the Council’s preliminary key indicators in Chapters 4 and 5 (Key Indicators 1 and 2 on aggregate demand and supply; Key Indicators 3 and 4 on affordability for home buyers and private renters; and Key Indicators 5 and 6 on affordable and available supply for private renters). They are not repeated here. Rather, this short concluding section of the report focuses on the implications of the Council’s work to date and on what more the Council needs to do to deliver valuable responses to its Terms of Reference.
Implications of findings to date
As noted in several places in the report, the projections of demand, of supply and of the gap between them are simplistic and unlikely to be realised in the longer term. The housing market is dynamic, as is the economy as a whole, and the emergence of a major gap between effective demand and supply would stimulate market reactions affecting price (affordability) and aggregate supply.
No matter how sophisticated the Council’s modelling may become, however, long-range projections are fraught with uncertainty and must have profound margins of error. Twenty-year projections simply serve to illustrate the consequence of proceeding on a certain trajectory rather than provide a likely view of the future. That is a key outcome of the Council’s projection work to date – it demonstrates that present levels of production are insufficient to meet Australia’s housing needs under a variety of population growth assumptions and that changes are necessary to meet predictable growth in demand.
How much of that remedial action is likely to come from the market itself and how much change might come from government action is not yet known.
Many Australian government jurisdictions are exercised by the need to ensure adequate land supply to accommodate growth while increasing population density and ensuring adequate provision of urban infrastructure. Some States have recently announced initiatives to this end. Infill land supply and constraints on development in established urban areas are likely to be an increasingly significant issue in coming years.
Developers and others are concerned that the increasing cost of land and the burden of taxes and charges associated with development are pricing housing beyond the reach of many who would have been able to buy in previous years, and that this is restraining growth in aggregate housing supply. The Council notes that ensuring an adequatey supply of affordable serviced lots with ready access to jobs, transport and services has proven challenging in several cities. Measures to increase land supply and reduce the cost of urban infrastructure to home buyers would likely stimulate an increase in production and a reduction in the price of new housing.
Planning and development approval processes fulfil important economic and social purposes, but they also extend the time required to deliver housing. They also vary considerably throughout Australia, adding to transaction costs. At the Federal level, in cooperation with States and local governments, action is underway to improve the efficiency of planning and development approval processes.
At least at the lower end of the rental and owner-occupied portions of the market, it is unlikely that the market itself will be able to rectify the supply shortfall, and government policy and programs will be required to meet the gap. The form this takes – whether changes in the nature and incidence of housing-related taxation, measures to address land supply, measures to reduce the cost and improve the delivery of urban infrastructure, further changes in planning and development approvals processes, subsidies for owner-occupancy and investment, and/or direct provision of housing – is a matter for governments at all levels. All are under active consideration by the Australian Government and, State and Territory governments at the present time.
The Council’s work to date indicates that action is needed to lift social housing supply and that the supply of affordable private rental housing for lower income households is also inadequate. These are both targets of recent Australian Government initiatives and have also been addressed to some extent by some State governments. The emerging National Affordable Housing Agreement provides an opportunity for governments to increase and coordinate their efforts.
Summary of future research priorities
The National Housing Supply Council has been established at arm’s length from government to improve the evidence base for housing policy and provide independent forecasts of the adequacy of construction and land supply to meet future housing needs. The Council is building a research and development program to improve the knowledge base for longer term empirical analysis and forecasting for the State of Supply Report, and to pursue evidence about emerging issues identified through the work of the Council.
The first objective of the research and development program relates to the ongoing requirement for quality data and methods to underpin production of the annual State of Supply Report. Projects envisaged include:
- a macro-economic model of the housing market
- ongoing collection of data and implementation plans from States and Territories in relation to land supply and the dwelling construction pipeline
- ongoing collection of demographic information (household projections, etc.) to support demand projections
- refinement of ongoing indicator measures and definition of associated data collection requirements.
The second research objective relates to the need to draw on expert resources and evidence to fill information gaps identified by the Council as part of drafting the first State of Supply Report. The following research topics are being considered by the Council:
- Analysis and refinement of housing lot supply data provided by States and Territories, including infill development land with a view to improving land supply projections
- Development, calibration, testing and application of a macro-economic model of the housing market that enables assessment of, among other things, the effect of changing economic circumstances on housing market activity, and vice versa
- Development of a housing cost model built on data pertaining to all inputs to the final cost of housing for consumers. These inputs would include raw land costs, development costs and charges, land holding costs, housing production costs, legal costs for producers and consumers, taxes on producers and consumers, marketing costs, risk premiums, development margins and so on. The Council’s objective is to be able to model these inputs across housing types, geographical locations and market conditions
- Analysis of housing submarkets to provide a more detailed assessment of
the current situation and likely trends in supply, demand and affordability
for particular dwelling types and household types
Submarkets of particular current interest include:
- apartments
- smaller units on the urban fringeaged households
- first home buyers
- Characteristics of an efficient housing market and an assessment of Australian housing markets against these characteristics – comprising a conceptual theoretical analysis of the elements of an efficient housing market and an empirical assessment of the relative efficiency of various Australian housing markets (compared with one another and with ‘world’s best practice’)
- Detailed assessment of housing market ‘hotspots’, with analysis of the drivers, costs and other impacts of localised rapid growth in housing demand
- Issues for assessment include the lag between growth in demand and increase in construction activity, how the market otherwise adjusts to increased demand and, in particular, the price, affordability and displacement effects of rapid demand growth
- Analysis of the vacant dwelling stock – including explanations as to why stock may be vacant (e.g. on-the-market, otherwise in the process of turnover, holiday homes, awaiting refurbishment or demolition, long-term unused, etc.)
- Environmental sustainability requirements, costs and benefits – assessment of the current and potential impact of measures to improve environmental sustainability on housing costs, production volumes and affordability, both point-in-time and over the economic life of housing units.
This work is intended to inform the Council’s next and subsequent State of Supply reports as well as the advice it provides to government on ways of improving housing supply and affordability.