If you’re a regular reader of property news, you’ll know that this country has a serious undersupply of housing and this is one factor keeping property prices healthy long-term.
The National Housing Supply Council says we’re undersupplied by more than 200,000 homes right now and this is projected to balloon out to at least 430,000 by 2028.
So what’s going on? Why are we undersupplied and why is the problem so hard to fix?
Basically, it relates to population trends, social changes, lifestyle choices, a lack of available land and constraints on construction including strict government planning approvals.
Many people think if the Government were to release more land ‘out west’ then the undersupply issue would be solved. It’s simply not that easy. Here’s a quick rundown of the main issues.
Lack of land
In cities like Sydney, we have natural boundaries that are contributing to a lack of available land. With an ocean on one side and mountains on the other, the Sydney residential basin can’t expand too much further. The major problem with releasing more land is paying for it to be serviced with water, electricity, roads, transport and other necessary infrastructure.
The other issue with releasing land on the outskirts of our cities is that not too many people want to live there, especially with inadequate public transport making the city commute that much longer. Lifestyle has become the driving force behind many people’s decisions about where they live. People are looking for close proximity to the CBD; good local amenities including cafes, shops and entertainment; easy access to public transport; proximity to beaches; and safe neighbourhoods. Generally, these lifestyle features are more readily available in the inner and middle rings of our cities.
The demand for apartments is going to rise at a faster rate than demand for separate houses, mainly due to the aging of our population and more people living alone, along with a rising number of couples choosing not to have children and thus not requiring the typical family home on a quarter acre block. We’re also seeing a strong trend in Gen Y Australians preferring to delay buying in the outer ring and renting in trendier lifestyle locations.
Our high population growth is being driven by high net migration – which we need given the skills shortage in this country, and a high rate of natural increase (that is, the number of births minus the number of deaths among Australian residents). Strong population growth means strong ongoing demand for housing.
Australian housing construction is at an historical low and there are a number of reasons for this. Many developers are finding it tough to get financing for new projects and they’re frustrated by drawn-out planning, approval and compliance processes. There are also many issues relating to developers’ obligations to fund supporting infrastructure around new developments. We also have a shortage of skilled construction labourers.
Insatiable appetite for property
A large percentage of Australians are using property investment as a vehicle for wealth creation. And good on them, too. Property is one of the safest and most reliable sources of capital growth over the long term. However, the big picture issue is our keen interest in investment means there are fewer homes available for owner-occupiers to buy.
In 2008, the government introduced the independent National Housing Supply Council to monitor housing demand, supply and affordability.