The Australian housing shortage will hit 200,000 this year as developers struggle to meet demand, bogged down by a shortage of credit, higher interest rates and regulatory burdens, experts have warned.
The comments come in response to a report from the National Housing Supply Council, which says the supply-demand gap increased to 178,500 homes during the 12 months to June 2009, representing an increase of 99,500 during the previous 12 months.
Additionally, the report also stated the national shortfall will reach 202,400 this year in a “medium projection”, and could possibly hit 640,600 dwellings by 2029 if nothing is done to fix the problem. Council chairman Owen Donald has said this number could be even higher.
Victoria has recorded a shortfall of about 22,000, with the biggest shortages in New South Wales and Queensland of 57,600 and 56,100 respectively. The lowest shortfall is in the Australian Capital Territory, with a shortfall of just 5,000 dwellings.
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The figures come just weeks after a Housing Industry Association report found the demand-supply gap will hit 466,200 by 2020 if no action is taken to increase dwelling construction rates.
The report noted a number of barriers to development, such as high levels of regulation and difficulty accessing finance, along with a shortage of land.
”Community opposition is often a significant barrier to infill and medium-density development,” it also stated.
David Airey, president of the Real Estate Institute of Australia, says the shortage is just “same-old”.
“Nothing changes. The states blame the Federal Government, the Government blames local authorities and it keeps going around in circles until somebody grabs someone and says that we need a cohesive plan. It’s going to continue to get worse.”
“In simplistic terms, people are choosing not to build new homes and developers are not putting up new spec homes in housing estates to assist the supply side. The established home market is under pressure with increased demand and a lack of a supply.”
Airey says these factors, combined with interest rate rises, are deterrents to developers who “simply can’t borrow money”. He recommends the Federal Government institute a national building planning authority which could coordinate with state authorities to open up new land developments.
“At the very least we need states to take over planning regulations away from local authorities.”
The report itself states developers are concerned about the increasing cost of land, and the burden of taxes and charges associated with development. It claims these prices put housing “beyond the reach of many” who would have been able to buy in previous years, thus restraining growth.
“The Council notes that ensuring an adequate supply of affordable serviced lots with ready access to jobs, transport and services has proven challenging in several cities. Measures to increase land supply and reduce the cost of urban infrastructure to home buyers would likely stimulate an increase in production and a reduction in the price of new housing.”
It also claims the solution is a matter for governments at all levels, whether the solution be “changes in the nature and incidence of housing-related taxation, measures to address land supply, measures to reduce the cost and improve the delivery of urban infrastructure, further changes in planning and development approvals processes, subsidies for owner-occupancy and investment, and/or direct provision of housing”.
CommSec economist Craig James also said Government action is appropriate given the dramatic projections included in the report.
“The bottom-line is that the Reserve Bank can’t solve the housing crisis by lifting interest rates. This only would serve to temporarily depress demand and reduce incentives for investors and developers to increase supply,” he said in a statement.
“Clearly it’s now up to state and territory governments to practically respond to the findings in the latest report. The time for fine words and statements of intent has passed. Now budding home buyers, renters, the Reserve Bank and developers all want to know how the supply gap will be bridged.”
But not all agree that the shortage problem should be fixed via the construction of new dwellings. Louis Christopher, SQM Research founder, believes there is more to be found in the vacancy statistics than most people believe.
”The vacant stock identified in the 2006 census was roughly equivalent to six times the number of new dwellings completed each year and eight times the number of homeless people in 2006,” the report stated. Christopher says this point is crucial to understanding the shortage problem.
“I agree that vacancies are tight, and the issue there is particularly at the lower end of the market. But it’s important to note the shortage isn’t everywhere, for example, I don’t believe the shortage is that high in south-east Queensland, and I struggle to see a shortage in Perth.”
Nevertheless, Christopher says action must be taken to increase supply, but he also believes an increase in construction is already underway and there could be significant improvements made to the supply gap this year alone.
“I think we are going to see a resurgence in supply. We need a normal economy for that to happen, going forward, which we have, and I believe there is actually more of a chance of a greater supply response in the short- to medium-term.”
But the New South Wales Property Council isn’t so optimistic. Executive director Glenn Byres said in a statement in response to the report that the Government must take action quickly to address the problem or face a genuine crisis.
“The Government needs to act more urgently in taking responsibility for the supply shortfall in Sydney and facilitating projects from concept to completion.”
“We need to move past a regime of high developer levies that diminish the feasibility of projects and reduce housing affordability. NSW also needs to deliver on past policy promises, including the introduction of a deferral mechanism to the point-of-sale for State Infrastructure Contributions.”
“Delays and complexity in the assessment process can mean that housing projects currently entering the system won’t hit the market for three years.”