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Housing shortage crisis and affordability issues will get worse says HIA

Affordability issues are at the top of the agenda when it comes to Australia’s property markets. You can’t open a newspaper or turn on the news without seeing or hearing a report about struggling first home buyers attempting to get a foot in the increasingly expensive property door.

Rental markets are tightening as more and more would-be home buyers are forced to remain on the tenancy treadmill, interest rates are on the rise and we’re simply not making enough new homes to cater for our growing population. Now, a recent report from the Housing Industry Association suggests that our housing shortage is set to get worse and affordability will further decline unless drastic measures are taken by the government to overhaul policies.

According to the HIA National Outlook report, housing starts are predicted to fall by 4% during 2010-11, despite increasing by 26% during 2009-10 as a direct result of government stimulus packages.

HIA’s chief economist Harley Dales says, “The fact remains we are not building enough homes to match demand, and going forward our national housing shortage is expected to worsen.

“Renewed weakness in new home starts in 2011 would mean there were only two years in 10 when starts have risen. That is an appalling result, which highlights the challenge Australia faces in addressing a large and growing housing shortage that will place considerable further pressure on rental markets.”

Dale says that higher interest rates will curb construction activity and assistance from the federal government is required to make the problem better. This includes an overhaul of development and building regulations, so new blocks of land can be developed faster.

“However, if we want to address Australia’s housing shortage then the Federal Government needs to lead from the front on a range of policy areas including further investment in skills and training, reform of the tax system, an end to excessive regulation, increased land supply, reduced planning delays, and ensuring greater competition in the banking sector so there’s adequate finance for development,” he said.

“The breadth of policy challenges ahead highlights the disappointing fact that Australia does not have a Federal ministry dedicated to housing.”

In an article published by Smart Company that highlighted the HIA’s findings, SQM Research founder Louis Christopher said that when demand for housing inevitably increases as the RBA starts cutting interest rates down the track, housing affordability issues will be compounded by this concerning lack of supply.

“Housing starts are a function of demand. Builders don’t go out and build unless they’ve got demand to start with. The overall market has been slowing up, so I don’t think there’s an immediate impact on housing prices.”

“But when demand does suddenly pick up again, what it means is that you have this fixed supply situation and prices are likely to shift upwards quite quickly when that demand picks up again.”

However, he says solving the issue is not simply a matter of developers going out and building more houses across the country. In fact Christopher contends that some cities, such as Brisbane, have an oversupply of dwellings; meaning developers need to specifically target areas where the largest housing shortage problems lie.

“This is why the issue of supply needs to be tactical as well. It’s no good trying to push a macro-style incentive when what we need to do is build smarter, not just everywhere,” says Christopher.

“The RBA is right in that if we have a massive income boost through terms of trade, which could happen at any point, then we will see prices increase. We definitely need to find solutions which reduce the cost of building homes for developers.”



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Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


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