The big talking point at barbecues, dinner parties and gatherings seems to be property prices. It’s something I have talked about before here and it’s getting worse.
One of the big drivers is the housing shortage which has become a national crisis. As reported here, the National Housing Supply Council has found that the gap between supply and demand for housing has doubled in 12 months and it’s expected to widen. The housing supply-demand gap increased to 178,400 homes in the 12 months to June 2009 – up from 99,500 for the previous 12 months.
The Supply Council expects the housing shortage to worsen this year to more than 200,000. Victoria had a housing shortfall of about 22,000 dwellings, while the biggest shortages, of about 60,000, were in New South Wales and Queensland. Building a new house on Sydney’s fringe costs about $200,000 more than it would in other capital cities, ensuring the city’s severe housing shortage will only get worse. By 2029 Australia‘s shortfall is expected to be 640,000 homes. Low-income earners have been hardest hit by the housing shortfall, with more than 160,000 households paying more than half their income on housing repayments and 170,000 paying more than half their income on rent. And it means property prices will continue to rise. Housing, a basic right, is becoming more unaffordable. How do we deal with the crisis?
Ross Gittins writes that it’s simply a case of supply not keeping up with demand. “Our fundamental problem is simple: demand for homes is running ahead of supply. The growing demand is being fed by exceptionally high levels of immigration. In a textbook world, increased demand eventually calls forth increased supply. But not in our world. The supply of additional homes is being constrained by the banks’ unwillingness to resume lending for multi-dwelling development projects (temporarily, let’s hope) and by the failure of state planning processes to make sufficient land and medium-density building opportunities available.”
All this has created the affordability crisis. The Annual Demographia International Housing Affordability Survey, as reported here, finds that people buying a house in Sydney can expect to spend 57.4 per cent of their gross income servicing the mortgage, while a Melbourne household can expect 50.4 per cent.
This is the backdrop to the Federal Government’s backflip, one of the many, where it clamped down on foreigners buying property. So the Government is reinstating restrictions on foreign property investment that were scrapped in 2008 during the GFC when it was trying to attract investors. Just another U-turn. It comes amidst reports that first home buyers are being squeezed out of the market by cashed up investors.
But those investors are cashing in on rising properties which are being driven up by the housing shortage. And building new houses on the more affordable fringes of the cities is not that easy with the latest figures showing a fall off in construction. In my podcast interview with RMIT economist Steve Kates, questions were raised about why we are seeing this continuing contraction in the residential housing sector. Kates says we don’t seem to be doing anything to alleviate the problem. On the other hand, he points out that there is huge activity going on in the public sector with the Rudd Government’s schools policy which he claims is siphoning away private sector investment in housing. The developers are making a buck out of public sector building instead of building houses for people. We’re not investing enough in housing.
Still developers are saying we shouldn’t blame them. They blame it on glacial bureaucratic planning processes and high development levies. Indeed, Sydney’s planning system is so bad that BIS Shrapnel is warning that Melbourne will overtake it to become Australia’s largest city.
Furthermore state governments are not releasing enough land for housing which, as Aussie Home Loans executive chairman John Symonds says is negligent. Symonds has a point but part of the problem is that state governments would have to build infrastructure like roads, schools, police stations and health facilities if they release more land, and that’s costly.
How do we address the housing shortage? What should governments and councils do? Are you finding it harder to buy a home? Have you been squeezed out?