Business Spectator’s Robb Burgess has posted an interesting article tackling some of the reasons behind the undersupply of Australian housing:
…why we have become accustomed to the phrase ‘housing shortage’ and why affordability of homes is so low today compared to when house prices really started to take off in the mid-1990s.
The answer lies not in the ratio of the number of dwellings to residents, but what kind of residents we’ve become – that is, residents who don’t want to live with each other as much as we once did.
It is a complex picture, made up of numerous social trends, including:
– An ageing population, which means more ‘empty nesters’ rattling around in large houses;
– The newish phenomenon of ‘living apart together’ or LAT couples, who consider themselves to be an item but don’t want to share a dwelling;
– Increased demand for second/holiday homes; and
– A growing numbers of relationship breakdowns, and new patterns of habitation in the complex ‘lattice family’ structures such a change produces…
Trends such as [the above] help explain why housing ‘supply’ has failed to keep up with demand.
We don’t have a problem with ‘the population’ growing ahead of housing stock, but with a population that doesn’t want to live together…
The broad factors described above are prima facie supported by the next chart from the Census showing that the number of bedrooms per dwelling has been rising as the number of people per dwelling fell in the decades to 2006 before rising more recently (see next chart).
However, it is wrong to simply attribute Australia’s perceived housing shortages to these newish phenomenons. As illustrated last year by Saul Eslake in his 50 years of housing policy failure speech, the number of people per dwelling had been falling since Federation, and the recent uplift was the first rise in 100 years:
So the trend to smaller household sizes, and presumably larger dwellings, is nothing new, and should be expected as incomes rise and living standards improve.
What is particularly concerning about Australia’s experience is that the recent uplift in people-per-dwelling during good economic times suggests that housing supply has not responded adequately to higher prices.
Dwelling construction data from the ABS shows that dwelling construction rates in Australia fell significantly from the mid-1990s, despite skyrocketing prices, suggesting that housing supply has become less elastic (responsive) to price:
This is the opposite to what would have occurred in a normal well-functioning functioning market, whereby increasing prices would have elicited a strong construction response.