Housing supply levels will become an increasingly important issue in
Australia over the next few years, with property prices continuing to soar and
population levels still rising. Housing supply has a direct effect on home
affordability, with ongoing supply issues addressed directly in the latest
'Housing Australia's Future' report by the Housing Industry Association (HIA).
According to the HIA, housing requirements should be a higher priority for
policy makers, who need to meet the challenges of population growth, stock
replacement, and changes to living standards.
According to the HIA report, housing supply has fallen short of demand for many years now, with a lack of new homes influencing property prices and keeping people out of the market. The number of new homes needed in Australia depends on population growth and living standards, with HIA's target area between 134,237 and 253,239 new homes each year. While new home building reached an all-time high of 220,000 dwelling commencements in 2015, a 10.8 percent increase, this threshold has only been reached three times over the last 30 years.
According to HIA economist Gordon Murray, “By the year 2050 it is highly likely that Australia’s population will lie somewhere between 34 million and 42 million... This range implies a very wide array of possibilities, any of which will have a significant determining influence on the amount of residential building activity required in the intervening period... Worryingly, we have only reached the annual level of output required under the mid-range growth scenario on three occasions over the past 30 years.”
Policy makers can influence supply levels in many ways, including negative gearing rules, taxation on new builds, and planning procedures. “While debate about housing supply has recently been caught up with speculation about possible changes to negative gearing rules, it is important to remember that there is a multitude of more important avenues for reform." said Murray, adding “The burden of taxation on new-home building is excessive, planning processes are too slow, land supply is inadequate, and we need to see more equitable funding models for the community infrastructure that supports residential development.”
While Australia has failed to meet supply targets over the last three decades, the strong results of 2015 may indicate better things to come. According to RBA deputy governor Philip Lowe in his keynote address to the Urban Development Institute of Australia National Congress, "the rate of growth in the dwelling stock has increased so that it now once again exceeds that of the population." The situation is not all rosy, however, with residential construction still down on a long-term basis. "Reflecting this increase, the share of GDP accounted for by the building of new dwellings has risen significantly and is now close to the various peaks reached over the past 50 years. Notwithstanding this, with spending on alterations and additions being relatively subdued, overall investment on residential construction remains some way below the previous peaks.”
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