Increasing Supply is no Panacea for Housing Affordability

Claims that the housing crisis is a dearth of supply has been challenged by new modelling that shows that boosting supply alone will not deliver affordable housing.

Despite government and the development industry consistently calling for the release of more land to address an undersupply of housing, a new study by the Australian National University has found the opposite may be true.

The Regional Housing Supply and Demand in Australia Working Paper, by Associate Professor Ben Phillips and researcher Cukkoo Joseph of the ANU Centre for Social Research and Methods, analysed 15 years’ worth of Census data and building approvals.

They estimate there is an oversupply of 164,000 dwellings in Australia.

The modelling found that Australia had an oversupply in some markets such as parts of inner city Sydney, Melbourne and Brisbane. Many regional centres, particularly those in mining-sensitive areas such as North Queensland and Western Australia, also retain housing surpluses.

Many regions in the middle and outer rings of our major capital cities, particularly Sydney, face modest housing shortages.

“The surplus is not particularly substantial, but certainly suggest that housing supply in and of itself is probably not the primary driver of house-price growth in Australia. There are other factors that are going on,” Phillips said.

“We’ve looked at factors like changes in household types and dwelling types and unoccupied dwellings which we don’t think have been taken into account in other studies in any substantial way in the past, and certainly not at the regional level.

The standard line of governments and industry seems to be that housing supply is a big problem in Australia. No doubt there are some areas where it is. But overall we don’t see the housing shortage that’s often talked about – in fact we see that there is a surplus.”

[Related reading: Building Approvals Rise Again in September]Phillips said that often the behaviour of property prices at the regional level "has nothing to do" with underlying fundamentals for housing demand, including population growth.

"Housing is an asset and assets don't always reflect the fundamental underlying value -- [supply] does matter, but there are lots of other things at play that can swamp that impact … that means improving affordability is not as straight forward as fast-tracking a bit of supply to solve the problem."

The Regional Housing Supply and Demand in Australia Working Paper is available here.