26/06/2014
How big is the housing shortage in Oz?
It’s hard to pick exactly how big the housing shortage is right now, but looking ahead, it’s only going one direction – and that means rising prices as far as the eye can see.
I’ve been saying for a while that Australia just hasn’t been building enough houses. Because new supply’s been falling each year over the past decade, a housing shortage has opened up, and this is perhaps the dominant factor driving the current boom in prices.
Not enough houses = people bidding up the prices of those that exists. Economics 101.
It’s on full display in Sydney and also in Melbourne. It’s not as stark in the other capitals, but mostly because immigration hasn’t boomed the way it has in Sydney and Melbourne.
In fact, I’d probably argue that there was already a shortage building in Sydney in the year 2000. Since then, as the numbers show, it’s only gotten worse.
And from here, it’s only getting worse still.
Sydney and Melbourne are growing rapidly. Melbourne is pipped to get close to 8 million by the middle of the century. Sydney is looking for 7 million.
That’s pretty solid growth.
And all those people will need somewhere to live.
The NSW government has done its sums. Over the medium term, they reckon there’ll be an extra 2 million people by 2031. 2 million in just 16 years.
They also reckon they’ll need an extra 660,000 homes to house all these people.
Well, let’s put that in perspective. What they’re saying is that they’ll need about 40,000 new homes a year.
But how likely’s that? In recent years, home building rates have dipped as low as 10-15,000 a year. 20-25,0000 is considered a good year.
Classic case of supply cannot meet demand so property prices will continue to go higher and higher
And that’s been one of the key drivers – an unexpected surge in immigration has helped pump the population numbers. Prior to the GFC, annual immigration averaged less than 150,000 a year. Following the GFC it jumped to over 200,000 a year.
That’s a big difference.
Economics drives migration. When our economy is out-performing the rest of the world, Aussies stay home rather than work overseas, and more foreigners come to live here – driven along by a demand for skilled labour.
And the vast majority of immigrants tend to land and settle in either Sydney or Melbourne. And that’s why I reckon we’re looking at major housing booms in Sydney and Melbourne right now, with less evidence of heat in the other capitals.
