THINKING LONG TERM ON HOUSING SUPPLY
Australia's population recently passed 24 million, and is expected to hit between 34 and 42 million by 2050. (1) The impact of this population growth on the housing market was explored in the 2016 edition of the Housing Industry Australia's (HIA) Housing Australia's Future report.
Housing the future
One of the questions arising from HIA's Housing Australia's Future report is: Where will Australia’s new residents live?
Construction began on 220,000 new dwellings in 2015, a record high, but the HIA anticipates a downturn. This prediction is already coming to pass, with new home building approvals down 7.5% in January this year. (2) Only 160,100 new dwellings are estimated to be built in 2018. (3)
What's causing the decline?
There are several factors contributing to the anticipated decline in new housing approvals and construction. Lenders have begun to respond to pressure from Australia's bank regulator, APRA, to tighten lending criteria (4); foreign investors are being required to pay increased stamp duty; and housing affordability continues to be an issue, due to stagnation in wages and recent sharp increases in the cost of property in our 2 major capital city markets.
How many houses will we need in the future?
The question really is: how much housing will we need to support our growing population?
According to the HIA, this will depend on growth levels and living standards, but the number of new homes required each year could be up to 250,000.1
If the most optimistic estimates are realised, we're certain to fall short at the current rate of construction. While new dwellings built were at their highest point in 2015, these levels have only been achieved three times in 30 years. Relying solely on organic growth will not be enough.
What needs to change?
Government policy will play a key role in meeting the increased demand. Labor has proposed to gradually rein in negative gearing concessions for property investors but so far the recently re-elected government has not taken up the challenge.
Taxation reform could also contribute to meeting increased demand for housing, while measures such as funding community infrastructure, providing access to more land, and replacing State government imposed stamp duties with lower annual land tax could encourage an increase in future housing stock and improve market liquidity.
1. HIA press release, 23 February 2016
2. Property Observer, 11 March 2016