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The root of Sydney and Melbourne’s housing crisis: we’re building the wrong thing

By 2022, Sydney will need to provide housing for an additional 309,000 households, while Melbourne will need an additional 355,000 households.

So why are we building flats, when it’s family-friendly dwellings we’ll need writes…

Bob Birrell, Monash University

As is well known, the shortage of affordable separate housing in Sydney and Melbourne means that most first home buyers and renters cannot currently find housing suited to their needs in locations of their choice. Sydney property markets

The dominant response from the housing industry and commentators is that governments must unlock the potential for more intensive development of the existing suburbs.

From this standpoint, the recent surge in high-rise apartment construction in the Melbourne and Sydney property markets is part of the solution.

For those looking at the issue from a financial perspective, escalating housing prices is seen as a reflection of low interest rates, as well as incentives for investors to take advantage of negative gearing and capital gains tax concessions.

For the Australian Prudential Regulation Authority, this means the answer is to restrict access to borrowing. Policy has been driven by advice from commentators using a flawed evidence base.

While these factors are important in contributing to the affordability crisis in housing, the issue has deeper roots that lie in the changing demographic make-up of Sydney and Melbourne’s populations.

Our new study on new household and dwelling projections for Sydney and Melbourne from 2012 to 2022, highlights the need for rigorous academic research to inform public urban policy.

To date, policy has been driven by advice from commentators using a flawed evidence base. 

None have grasped the scale of need for family-friendly housing, or understood the full effects of ageing in place on the availability of detached houses in Sydney and Melbourne.

The projections build on the widely-assumed expectation that Net Overseas Migration (NOM) will continue at 240,000 to 2022 and that Sydney and Melbourne will receive almost of this number.  

investor-enquiry-form

The household projections assume that the propensity to form households by age group and family type will remain the same as in 2011 in both cities.

Projections for dwelling needs were then computed for both cities on the assumption that households will occupy the same type of dwelling (separate house, flat) by family type, age group and migration status in 2022 as was the case in 2011.

On these assumptions, Sydney will need to provide dwellings for an additional 309,000 households and Melbourne an additional 355,000 households over the decade 2012 to 2022.

The key finding is that contrary to most housing industry opinion, the greatest need will be for family friendly dwellings.

This is because of the large number of young resident and migrant households who will be entering each city’s housing market.

Most of these households are likely to start a family and when they do so, will look for a separate house.

Dwelling structure of households by age group of reference person

Author provided

Dwelling structure of households by age group of reference person 2

Author provided

It is true that there will be a large increase in the number of single person and couple families over the decade.

However, most of this increase will be amongst older, already established households.

The evidence indicates that the great majority are ageing in place Melbourne’s housing markets.

The surge in the number of older households is a consequence of population ageing as successive ten-year cohorts replace smaller cohorts born in earlier years.

This ageing effect is having an enormous but largely unrecognised effect on Sydney and Melbourne’s housing markets.

It will generate the need for an additional 109,570 extra dwellings in Sydney over the decade to 2022 and 161,990 in Melbourne.

In addition, net overseas migration will add a dwelling need of 198,810 in Sydney and 193,140 in Melbourne by 2022.

This combination of high dwelling needs of young residents as well as from NOM, along with the blocking effect of the ageing population, is contributing to a severe and continuing squeeze on the detached housing markets in Sydney and Melbourne.

This is particularly marked in the inner and middle suburbs.

The reason is that, by 2011, 50 to 60% of this housing stock was occupied by householders aged 50 (See Table 10 in the report).Inner and middle suburbs

This situation will get worse as the number of these older households increases.

The study compared the recent pattern of dwelling approvals by housing type in Sydney and Melbourne with the needs implied by the dwelling projections.

The conclusion was that there are too few separate houses being approved in both cities and too many apartments, especially in Melbourne.

Current policies of urban renewal or urban consolidation in established suburbs will add little to the supply of affordable family friendly dwellings.

This is primarily because of the increase in the price of potential building sites.

There is a vicious circle in play as the scarcity outlined above contributes to further increases in the price of separate houses and thus to the cost of possible sites for higher density dwellings.

Implications

Because few families can afford detached housing in the inner and middle suburbs, more are being pushed into the outer suburbs and the fringes of Sydney and Melbourne.

It is still possible to find such affordable housing in the outer and fringe suburbs of Melbourne, but not in Sydney.

A detached house costs a minimum of $600,000 even in the remotest corners of Sydney. Implications

The only affordable option for most of these home seekers is a unit in these outer suburban locations.

There is no short term fix. In the long term more resident and migrant families are likely to seek affordable housing elsewhere, or in the case of migrants, may by-pass Australia altogether.

Those who choose to stay will have to make adjustments to their life-style as by delaying starting a family.

On the other hand, a glut of high-rise apartments is inevitable, although it is being masked by the long lead time in the completion of newly approved apartment projects.

This is because the recent surge in approvals is way above the need for such dwellings.

This is especially the case in Melbourne.

The apartments being approved are predominantly tiny 60 square metre or smaller dwellings with no access to protected outdoor space.

They are totally unsuitable for raising a family.

They are tiny because most investors prefer to buy at prices below $600,000.

Co-author David McCloskey, was a partner in Deloitte Analytics and Adjunct Senior Research Fellow with the CPUR. He is now the Founding Director of SenseValue. He is also a research partner at The Australian Population Research Institute. Bob Birrell, Researcher, Monash University.

This article was originally published on The Conversation. Read the original article.



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Apart from our regular team of experts, we frequently publish commentary from guest contributors who are authorities in their field.


'The root of Sydney and Melbourne’s housing crisis: we’re building the wrong thing' have 5 comments

  1. Avatar for Property Update

    November 7, 2015 @ 12:23 pm John Beattie

    I like this Scientific and Demographic approach which is backed by facts and logic. It puts things in a totally different perspective and gives insight into long term demand enabling investors to plan for the long term and in turn ensures a more successful outcome. For the most part investors are not sophisticated enough and do not take into consideration all of the facts but blindly follow the herd or are lead by Developers and their appointed sales agents who conveniently leave out negative issues in regards to the properties they sell. Glossy pictures showing new developments with their new features mean nothing if they sit idle and do not meet the needs of the market place. In turn they don’t receive the capital growth more suitable properties provide. Property investing is a costly process. Not just in initial costs and holding costs but also from a time perspective. Choosing the wrong property can set you back years in your wealth building and act as a brake on future growth. Potential investors would do well to do more research and choose people they can trust to advise them rather than taking a punt on a gut feel or going it alone.

    Reply

  2. Avatar for Property Update

    November 7, 2015 @ 6:01 pm George

    More information based on irrelevent facts. What households need and what they can afford are 2 different things!
    It also ignores the fact the peolple will make sacrifices to live closer to the city.
    These are the most important words in this article: “The only affordable option for most of these home seekers is a unit”
    but NOT in outer suburban locations !!!

    Reply

  3. Avatar for Property Update

    January 8, 2017 @ 1:55 pm Ron

    I agree with the need to supply more family orientated housing closer to the CBDs. The demographic is out of balance in these inner city suburbs. I have noticed in the inner suburbs of Sydney there seems to be a reluctance for families to consider the purchase of say a new well presented & appointed 2+2+1 apartment with study area in the $1m to $1.3m range over detached house further out, or heavens forbid an inner city rundown very pokey 2+1 terraces of similar value?
    In our modern society parents are both working to be able to purchase so children are sent to childcare and engage in sport or extra activities and rarely get opportunity to use the external yard space apartments are becoming more pet friendly and there are usually great parks and facilities close to apartment living.
    Should we not be seeking to change the thinking and consider apartment living as the more attractive option for families & develop larger 2,3 & even 4 bed apartment projects incorporating childcare facilities to balance the apartment stock criteria & encourage families to consider an apartment as a home? Micro & 1 bed units are in over supply, inner city detached homes are out of reach for most. Is this where investment should be going next?
    Much better use of space & more eco-friendly.
    Governments need to encourage & incentivise this type of development by reducing DA costs and encouraging volume. Developers & Builders need to ensure their designs & methods reduce overall purchase cost per M2.

    Reply


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