Defending the housing shortage

By Leith van Onselen

Last week’s revelation that the number of households disclosed in the 2011 Census was some 900,000 less than that assumed by the National Housing Supply Council (NHSC) appears to have prompted a rear guard action from one of Australia’s key housing shortage proponents – the ANZ Bank.

Over a number of years, the ANZ’s Property Research team has used Australia ‘chronic housing shortage’ to argue that Australian housing is not a bubble and that home prices would not fall. A classic example of the ANZ’s line of argument was on display in January 2011, in a report published on Smart Company:

A new report from ANZ claims residential properties aren’t overvalued…

Senior economist Ange Montalti also says the current short-term trends affecting housing prices, including a decline in demand and the lack of first-home buyer stimulus, won’t last for more than a year, predicting stronger growth in 2011-12…

Our view is that with the housing market being quite tight, we should see some support for prices over the next 12-18 months”…

Looking forward, Montalti believes a shortage of properties in certain areas, based on the population growth models, will keep prices moving in the second half of 2011, moving on into 2012.

“Worst case scenario is that we get some more flatness for a bit longer. But we have pent up demand, and there aren’t enough homes, so we suspect there will be upward movements in prices going into 2012 and 2013.”

Having based much of its argument on house prices around Australia’s so-called housing shortage, we should not be surprised that the ANZ has now released a report arguing that the overestimatation of the number of households by the NHSC and ANZ is not material and that Australia’s housing shortage is just as pervasive as ever:

We initially thought the reduction in estimated resident population (ERP) would significantly lower our estimates of the underlying demand for housing and bring down measures of the existing housing shortage.

However, closer analysis of the Census results and methodology suggest that our estimates of annual underlying housing demand and the housing shortage will be largely unchanged.

The ABS Census of Population and Housing contains a wealth of information on dwelling, household and population numbers, size and structure which are key inputs into measures used to determine Australian housing market balance methodology.

It has now been shown that estimates have significantly overstated Australia’s population growth over the 5 years since the previous Census in 2006.

But, much of the revision is attributable to a new methodology applied by the ABS to account for the under-enumeration of Census responses.

The application of this new methodology in Census 2011 effectively means while the level of the census population estimates have been improved, the 2011 Census population results are not directly comparable with earlier census data. The relationship between variables within each census is internally consistent but the 2011 ERP levels cannot be directly compared with earlier information.

Underlying housing demand is generally presented as an annual flow (or change). As the growth in population in our spliced ERP series is much the same as earlier estimates, our assessment of the annual growth in underlying housing demand remains little changed.

This means that despite the marked downward revisions to population levels, our earlier estimates of the underlying growth in the number of households and the housing stock that are used in our housing market balance calculations are broadly unchanged.

As a result our estimates suggest Australia still faces an unprecedented level of pent-up housing demand. The shortage of housing is clearly evident in tight rental markets where upward pressure on rents is intensifying. A lack of housing supply remains the key driver of housing affordability concerns and a re-acceleration of population growth combined with ongoing falls in new dwelling approvals foreshadows a marked deterioration in the housing market balance in the years ahead.

So according to ANZ, the change in population – or population growth – is roughly the same as previously estimated, therefore, the shortage of homes is broadly unchanged. The fact remains, however that if the starting (baseline) number of households (and population) in Australia was less than previously assumed by ANZ, yet the number of homes in Australia was the same, then the overall size of the shortage will have reduced significantly following the 2011 Census’ results.

In any event, I agree with the ANZ’s overall view that Australia has built less homes than it should have and that both prices and rents are higher as a result. Rather, my key issue with the ANZ’s line of argument is that Australia’s ‘shortage’ would prevent home prices from falling.

Let’s not forget that similar housing shortage arguments were used as a reason why prices would not fall in Britain and Japan in the late 1980s and early 1990s. Both regions then experienced large house price slumps, with Japan’s house prices still less than 50 per cent of the peak value reached two decades ago, while Britain’s house prices fell to their lowest multiple of income ever record in 1997.

Similarly, the most supply-restricted markets in the United States were typically the one’s that experienced the biggest rise in prices in the decade prior to the GFC, only to then experience the biggest busts (see here, here, here and here).

The key takeaway is that the argument that housing shortages arising from high levels of underlying (or ‘pent-up’) demand would prevent home prices from falling is inherently flawed. General economic conditions can deteriorate, causing unemployment to rise and the number of people per dwelling to increase as they group together to reduce their housing costs. Such actions can also turn a perceived housing shortage into a surplus, as occurred in Southern California.

The economic reality is that the demand for housing is highly changeable depending, largely, on the prevailing economic conditions. And when housing supply is unresponsive (‘inelastic’), these changes in demand are more likely to feed directly into prices instead of new construction, making the housing market more volatile and prone to boom/bust cycles.

[email protected]


Unconventional Economist

Leith van Onselen is Chief Economist at the MB Fund and MB Super. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.


  1. In any event, I agree with the ANZ’s overall view that Australia has built less homes than it should have and that both prices and rents are higher as a result.

    Yes that is the problem. Too few houses and/or too many people. Govt has choked supply and stoked demand. Simple economics. In one word – SHORTAGE.
    If you don’t like the word then use other words. But the solution is the same = more building and/or less people. Perhaps a period of choked demand and stoked supply.

        • Precisely! There can’t be a shortage of something if there is an alternative ( say a Toyota Corolla) just an affordability problem. I’d wager most Australians went to bed with a roof over their heads last night, so how can there be a shortage? Unfulfilled desire, maybe, but not a shortage.

          • +1

            I posted a chart of US median rents vs house prices awhile back – where I suggested that the surge in rents from long term trend maybe directly related to a housing bubble – i.e unaffordable housing because the median house price shoots off past the fundamentals, thus locking out normal buyers, who have to rent instead.

            Look at the current situation – low vacancy rates, high rents, huge amount of unsold housing stock on the market. There’s plenty of houses for sale, not many for rent…. That’s an affordability shortage, a market shortage – not a physical shortage.

            If we had properly responsive housing supply in this country, we would have no shortages at all.

          • drsmithyMEMBER

            Precisely! There can’t be a shortage of something if there is an alternative ( say a Toyota Corolla) just an affordability problem.

            I think there needs to be a distinction between things that are easily interchangeable (like, say, a Ferrari and a Corolla) and things that are not (like, say, a studio apartment vs a 4 bedroom house, or a two hour commute vs a 30 minute commute).

          • Yes, but if the prices of all cars has gone up across the board due to the effect of regulatory quotas, those responsible for the regulatory quotas cannot honestly say that the problem is all one of buyers perceptions and expectations. This is the case with housing in Australia.

            It is noticeable to anyone who has studied international evidence in depth, that there is a total disconnect between “affordability” and the consumption of space. In fact the 200 AFFORDABLE cities in the annual Demographia Survey would, on average, have SUBSTANTIALLY LARGER sections and above average house sizes; which completely flies in the face of the smart growth apologists assertions that all that is needed for affordability, is lowered expectations re space consumed.

            In fact, again using international evidence, those cities that have been “containing urban growth” the longest – i.e. in Britain – have house price median multiples of 6 or over (i.e. double the affordable cities in the USA) AND this is for homes that are on average HALF THE SIZE, DECADES OLDER, APPROX 10 TIMES MORE TIGHTLY CRAMMED TOGETHER, VERY MUCH MORE DILAPIDATED, LOWER QUALITY, LESS HEALTHY, WITH WORSE LOCAL TRAFFIC CONGESTION AND POLLUTION ISSUES.

          • Prince, often wonder what affect the Real Estate industry has on the rental affordability. In Canberra, one company controls 40% of the market through what appears to be independent operators. I’d be hard to convince the industry and the agents act “independently”. Adding to this, work mate owns a unit in Darwin and the real estate types are encouraging him to up the rent on his unit from $500 p/w to $1000 – and this is not an isolated incident. Wonder what the affect would be if we all had to directly negotiate with the owner?

      • Rents have risen dramatically over the past five years, which suggests that we haven’t built enough homes. Sure there’s enough to house the population (e.g. via share housing), but not enough to do so affordably and comfortably, which is the key issue from a public policy perspective.

        • And yet there is not a squeak on this issue in Parliament. At best we get intervention to ensure house prices remain unaffordable. Bah!

        • UE: “Rents have risen dramatically over the past five years, which suggests that we haven’t built enough homes.”

          MG: Not necessarily. Rents were low because landlords were willing to take returns as capital gains. Now that housing capital is not growing, landlords are taking their returns through rising rents.

          In supply terms, I suspect entry level housing stock is moving out of the rental market (as mum and dad sell up and realise some capital gain before it is too late) and into the first home buyer (owner-occupier) market. We are trading new ownership affordability for rental affordability.

          I also think there are enormous elasticities in the housing market. People delay home leaving, flat with friends, share houses and the like, to find affordable accommodation. While it might not be their first preference, they are relatively happy to do it.

          • So you are suggesting that investors were happily sharing profits with their tenants via low rents during the ‘good times’ on expectation of capital gains in 5/10 years time?

            I don’t think so. Landlords charge as much as the market will pay.

          • Stormy Waters; it is not that landlords were “sharing their profits with tenants”, it is that the market prices that tenants were willing to pay, did not rise, (the average tenants ability to pay did not rise) but property investors regarded the prospective capital gains as making the investment worthwhile.

            This is a classic evidence of a bubble.

            Mark Graph, you are right about the elasticity of home occupancy. I think “relatively happy to do it” might be a bit kind. For many, it is “Hobson’s choice”; the lower the income, the more so.

          • Exactly. My rental home is now up for auction as my landlord now wants to “get out” of the investment.
            I’ve been looking at rental accommodation and I can’t believe the prices people are asking compared to a year ago. I also can’t believe the vast amount of rental stock on the market. There is NO shortage: there’s heaps out there… just way overpriced. I can’t help thinking that owners are completely unrealistic about rent returns and are desperately trying to justify their investment.
            My real estate agent actually admitted to me the other day that he had just come from showing a rental property and no-one turned up!
            Me, I’ll move most of my possessions to my parents farm and wait out the next year or two in share accommodation before I’ll pay those prices..

          • NB: To clarify, I’m in inner west Sydney. Over 400 over priced rental properties are available on a single suburb and surrounds search on domain dot com..

        • Really? As a renter I cannot say that they have risen considerably over the past 6 years. Yes, the rents I have paid have varied, but when I look at the rent for a similar place, it hasn’t really increased.
          Anecdotal evidence here- A house I lived in a share house some years ago came on the rental market at a whopping $10 more per week than it was when I left, 4 years ago. It took about a month to rent. Knowing the general condition of the place (and the tenants) and the general condition of places in the area at that price range it was at the cheap end for what it is.
          I realise that one house does not make a market, but it is an example.

          What I have noticed recently is an increase on rooms advertised. Where once you would have clubbed together in a share house, with names on a lease of the whole place, the trend now seems to be for the estate agent to rent each room individually.- So what was a $400 a week 4 bedroom now has each room priced at $160, and includes utilities. This has the effect of taking some houses out of the wider rental market, and of increasing the underlying rent

        • UE, given that:
          – about 40% of homes have no mortgage
          – about 40% of people rent
          – one in seven homes are negatively geared (and therefore rented)
          I’d say the reason rents have risen a lot is because the specuvestors have seen house prices rise and thought it justifiable to jack up rents to pay for the excess sums they borrowed in greed.

      • If there are say 5000 Ferraris in Oz and 500,000 want one, is there a shortage?
        I just asked my computer and it said:
        No, that is not a shortage, that is a business opportunity. Janet can sell 495,000 stickers that say “My other car is a Ferrari”.

        • The answer, actually, is for the potential Ferrari owners to not be in a position to buy their next 458 ( lose their job; lose their partner; stocks plunge…you get the idea ie: today’s world); the price drops and more people get their dreams fulfilled. See how it works?

          • No Janet I do not understand you at all. Leith makes sensible comments about housing and you post nonsense about rare luxury cars.

          • Forrest GumpMEMBER

            I dont own a Ferrari, but I would like to rent one since i can rent it at 1/1000th the cost of ownwership and hand it back after say a week. No insurance, no Luxury car tax no major capital outlay. (Remember you cant claim luxury car tax as a tax deduction!) After the one week, I have caught the attention of Janet and we start to date. So i hand the Ferrari back amd I use the train again…On the train I read the news paper that says the joker that rents the Ferrari went broke and all his stock gets liquidated. I still dont want a Ferrari…i cant fit my surf board in the back of it. Not to mention that janet & I get married, have a kid and there’s no room for the baby capsule in the back (it doesnt have a back seat) So the Ferrari remains unsold, while Janet & I end up buying a new Toyota financed at just 2% over 5 years. (Yes true, & the deal ends June 30) Score board: Ferrari 0: Toyota 1. (I hope Claw can see the symetry in this 🙂

          • Janet, make sure you note my comment earlier about prices and “expectations”, the Ferrari versus Toyota comparison is not fair in housing markets distorted by regulations.

            There is no example in the world where urban growth has been constrained and price rises have been able to be “offset” by people trading down in section size. It is entirely typical for a new 1/10 acre section in a growth-constrained city to cost FIVE TIMES AS MUCH as a HALF acre section in the 200-odd cities in the USA that do not have growth constraints.

            Compare any Australian city with any city in Southern USA.

            Some people retort that the USA has had a price crash. The 60 odd cities with growth constraints had a severe price bubble and affordability pressures, with median multiples reaching Australian levels (7 to 9) – most of these cities have crashed by 50% which STILL has not brought their median multiples back to below 4. But in the 200 non-constrained cities, median multiples never went ABOVE 4. The price “peak and trough” has been typically, peak 3.5; trough 2.9. Even at peak, mortgage burdens are a fraction of the growth-constrained unaffordable markets, and house prices dropping from a typical market average $200,000, to a typical $170,000 does NOT make a foreclosure epidemic and a global financial crisis…..!

            A few million homes in California went from a comparable $350,000 to $900,000 and crashed back to $450,000. Now THAT is what makes foreclosure epidemics and GFC’s happen.

            I often wonder how much worse this will be in countries that did NOT have a mix of affordable and unaffordable cities, but the whole b—-y LOT were unaffordable, the result of urban growth containment. It has been a constant source of wonder to me how tough, pragmatic Ockers have let themselves get dragged into this by a bunch of eco-loony pansies wanting to protect the plants and insects on the urban fringe. Texans and US Southerners have not stood for this nonsense for a moment.

          • The Patrician

            Janet and Forrest.

            The first MB wedding?

            …and 1st MB baby?

            MB baby-naming competition?

      • Janet,

        I also believe that there is an element of “want”, as opposed to “need”, in the Australian housing market, as you imply.

        However……..the Finance Minister and I have travelled up and down the East Coast of Australia for some years now…..during those travels, as a matter of interest, we spend a bit of time at each destination looking at the local real estate market. We go through all the brochures, attend open houses, and (my favourite) attend auctions.

        The one outstanding feature, throughout many years of doing this has been the number of empty houses we have seen….I wouldn’t care to put a percentage on it, but it has been quite staggering.

        On the face of it, this would seem to support the “no shortage” argument.
        But, I hasten to add that this has been specifically in small-to-medium regional and coastal centres. For example, in places as diverse in population, location, and economic function as Corryong, a small town at the foot of the Snowy Mountains in Victoria, to Port MacQuarie, a large coastal regional centre on the mid-North Coast of NSW, right through to the Sunshine Coast of Queensland.

        It seems to me that much of the “oversupply” of housing often referred to is, unfortunately, in all the wrong places. Most of these towns have little or no employment opportunities, and infrastructure is marginal at best.

        Years ago, we had a government in this country that had a decent bash at decentralisation, but that effort was short-lived, and yielded limited results.

        The propensity of Australians to cluster in capital cities, now reinforced by the high-density living mentality of many of the more recent immigrants has, I believe, created a shortage of housing in this country. But….specifically in the cities.

        If we ever had the good fortune to once again be led by a government that has the courage and foresight to encourage the population of parts of the country other than 3 or 4 overcrowded hotspots, I think you would find that the housing shortage would practically disappear overnight – along with the ridiculous prices.

        We need to create opportunities for our working-age population to make a living and raise a family in regional areas. I had the good fortune to kiss Sydneys’ butt goodbye quite some time ago, and have been fortunate enough to enjoy a professionally-challenging and rewarding lifestyle ever since. Unfortunately, with the exception of a few mining towns, such opportunities have all but disappeared.

        Given the advent of the Internet, and the NBN, and the so-called “information economy”, I don’t see why this should remain the case.

        • Someone in NZ asked forum participants to walk round their local neighbourhoods and confirm the impression, or not, that around 1 in 100 houses is empty. I am a “walker” (for exercise) and I saw this everywhere I went.

          But if average occupancy rate changes from 2.3 to 2.35 people per home, what happens?

          This is a typical house price bubble phenomenon. People priced out of home ownership in large numbers, stay with parents, stay flatting at high densities, share a home with relatives, etc.

          • Like Phil, I’m a daily walker, and there are too many empty houses in Perth where I live to count. I also have access via a friend to power usage figures for all homes in Perth, and I can assure you that there are more vacant homes using tiny amounts of electricity than you’d imagine. If I could make these stats public, I’d crash the housing market. But I cannot due to in-confidence issues.

          • Phil and R2M,

            I yield to your more specific knowledge of urban areas.
            As I noted, my experience has been more related to regional areas, which I sadly watch shrivelling and dying (train services withdrawn, hospitals closed, infrastructure crumbling, CBDs deserted, etc.). If not for the recent sea-change and tree-change phenomena, some of these very pleasant places to live would have all but disappeared from the map.
            I guess my post was less an observation on the housing supply, and more a plea for someone to put decentralisation back on the political agenda.
            I still feel that the current housing situation in the cities, and our reluctance to populate areas other than the capital cities, are somewhat intertwined.

      • Your analogy fits well when applied to, let’s say, waterfront properties in Point Piper. It falls down when we consider houses on the fringe or apartments near transport centres, where there ought to be no problem building a place for anyone who wants one at a reasonable multiple of their income.

        Australian housing is more akin to the Government allocating 9,000 Corollas to 10,000 drivers then telling the ones who missed out to car pool or bid for one in the “free market”. The shortage doesn’t show up in the statistics, but it’s a huge impost on the 1,000 unlucky ones.

        The main cost of inflexible housing policies in this country is on would-be young families and people with lower incomes. The Ferrari owner and the Balmain household aspiring to live in Point Piper can look after themselves!

    • russellsmith55

      Do you only check Macrobusiness to see if someone is denying the ‘shortage’, so you can immediately refute them? I can’t really recall you commenting on anything else.

      If you didn’t want to come across as a vested interest drone / astroturfer you could at least pretend to be interested in other topics.

  2. It seems the ANZ oinkers (Phil Chronican excepted) are still in the “The boom is back” mode.

    I guess they will be the last to capitulate and therefore the most vulnerable among the Big 4.

    • Mav how long have you thought the economy is doomed to major correction. You seem like the negative kind if fellow who has been proclaiming for years and years due to what you see in your own back yard regardless of the whole scope. If you are right 1 out of the 100 times you have called doom please mark your score card on the last 20yrs not 2 or 3

      • Bryan Kavanagh

        That’s such nonsense! I, too, have been negative on the economy for a long time, during which time I have been in print forecasting the early 1990s property bust and recession, the 1997 south-east Asian crisis–OK, I’ll admit the latter wasn’t as bad as I’d anticipated in Oz), and the current financial collapse.

        If the same substantial flaw remains in the economy, namely, that we’re privatising more and more publicly-generated economic rent, particularly that of land, why on earth will the good times roll for more than a very limited time?

        I don’t know about MAV, but there are many fundamental socio-economic reasons to have been concerned for some time now. If you have a grasshopper’s time horizon, that seems like your problem to me Mondo007.

      • To add to my comment below, I have been in this country for only 3.5 years. So you can’t possibly accuse me of being a D&G’ER for the last 20!!

        Even otherwise, I haven’t been bearish on property forever. Been a property infestor overseas in the past, but the GFC turned my outlook towards economics upside down.

    • Those that can’t meet the price either begin sharing with more and more people until they can afford the market rate or become homeless I suppose.

      Most kids just wont leave home or will return to the nest – it’s the people who don’t have that option who will feel the pain.

    • You mean prices are “downwards sticky”. Yes, this is true. But it is also likely that the longer they stay stuck, the bigger the rapid fall will be when it comes. This is what happened in California.

      • I don’t think the big falls will come until the Boomers start having to liquidate their assets to pay for retirement.

        What concerns me though is the scenario where Boomers don’t sell up (because prices will go up “soon” or they put off the travelling for whatever reason) and they start needing expensive health care.

        We may find ourselves with a generation of people looking at having substantial inheritences ‘snatched away’ because their oldies need to pay for health care and hence will lobby the government of the day to assume the full costs of caring for their elderly parents.

        I can already see the ACA/TT headlines: ‘Hardworking Aussie Pensioners being ripped off by Mongrel Government’

    • take a look at HK. see how many people from multiple generations can be squeezed into a shoe box.

  3. FAIL.

    What ANZ are essentially saying is:

    There was a housing shortage previously + % change in household numbers are broadly the same, therfore there’s still a housing shortage.

    No, the ABS revision means they MUST revise their original assumption of a housing shortage in order to have any credibility. Regardless of whether there is a housing shortage or not, they don’t just get to keep their assumptions unchallenged, and thereby keep arguing that property price gains are mostly attributable to “fundamentals”.

    This is just another example of mainstream economists dismissing outright any contrary piece of information that might undermine their position simply by claiming they are right and always have been.

    The problem with the ANZ housing supply numbers has always been the assumption that because the market’s behaviour can be shown to be behaving that there’s an undersupply that therefore is an undersupply is flawed. Clearly the appetite for and availability of mortgage credit has affected property prices here in Australia, but the ANZ can dismiss/downplay it’s effects by pointing to their undersupply stats as THE key factor.

    • ANZ are getting around being “wrong” by claiming that their formula inputs would still imply a shortage….more or less in line with previous estimates… I’m not sure who they’re trying to convince – shareholders? nervous LMI insurers?

  4. Free_Market_Delusion

    I think there is another complication.

    I would suggest there is sufficient evidence that there is more than enough physical stock available or should I say potentially available but not currently for sale.

    If economic conditions get worse then much of this excess currently unused property could enter the market as people no longer see housing a a safe bet.

    And lets not mention baby boomers wanting sell out to top up lost super. If these things were to occur potentially there will be an excess of property available ready to drive down prices considerably and really messing up the banks confidence.

    The free market will sort out prices but this will ultimately impact the big 4 considerably.

  5. Agree that assumption of price appreciation due to a housing shortage alone is rather naive, especially based on other markets with supposed undersupplies.

    Going back on their demand vs supply graph, it seems were had a housing oversupply from when the graph started (mid 80s) to the late 90s. How did housing perform over inflation during that period of oversupply?

    It’s hard not to agree that some parts of Australia (e.g. inner city Sydney, boom mining towns) haven’t been building enough. But I’d argue that the real physical shortages are rather limited in their location.

    Rather, agree that the real undersupply is in “affordable” dwellings. As an example, there may be a moderate undersupply of physical apartments in inner city Sydney, and a greater undersupply of “affordable” dwellings, but I’d argue that there’s actually an oversupply of $600k+ one bedroom and $800k+ inner city two bedroom apartments.

    • There is not so much an “oversupply” at $600K and $800K, as a total distortion in the intersection between supply and demand due to land supply rationing.

      I have noticed again and again that the famously affordable cities in the USA that do not have growth constraints, have $140,000 fringe McMansions AND $140,000 CBD apartments. Memo to urban planners: this is “housing choice”.

      There is no city in the world where regulations aimed at penalising FRINGE “sprawl” do not end up distorting the urban land supply curve upwards along its entire length from fringe to centre, so that the fringe McMansions end up $400,000 and the CBD apartments end up $800,000. This is what urban planners call “INCREASING” “housing choice”.

      The CBD property inflates in price much faster because the urban land price curve always slopes up dramatically as it gets closer to a city centre, the land price is a larger and larger component of the price of “housing”, even when the “housing” is small apartments.

      Hayek and Schumpeter must be having a good laugh about yet more examples of “unintended consequences” up there in economist Valhalla.

  6. Here’s a very simple question. How do you reconcile a housing shortage with the fact that 10.7% of dwellings were unoccupied, up from 10.4% in 2006?

    • How do you reconcile a housing shortage with the fact that 10.7% of dwellings were unoccupied

      Easy. Two different definitions of shortage.

      • Look at China. 40 Million empty apartments. 300 million people living in slums.

        The problem? The vendors of the apartments are asking too high a price relative to what the slum dwellers can afford, because the vendors themselves paid too high a price to the well placed CCP officials who ran the development process.

        The names and places are different but the reasons are the same in Australia. And the UK. Empty houses – with price tags of half a million dollars, 6 times (or more) the median household income.

        The academic Steven Malpezzi says in more than one of his papers: “PRICE is a single sufficient statistic by which to determine whether supply is elastic enough or not”.

        Lots of in-depth analysis of population numbers and dwelling occupancies are really unnecessary. The median multiples reached in a bubble correlate to supply elasticity and nothing else.

        The title of this paper by a French academic says it all:

        BENARD, Vincent (2012): “A State Made Paradox: Simultaneous Housing Shortages and Vacant Homes”

    • Analysis by the NHSC showed that most unoccupied dwellings are either unoccupied for a good reason, or too far away from centres of employment. Rates vary from over 20% in holiday regions to under 3% in inner city suburbs.

      I wouldn’t place too much importance on the increase from 10.4% to 10.7% as this rate has varied quite since 1996 and the ABS often finds it difficult to determine whether dwellings are really unoccupied.

      • No. The NHSC has *asserted* that these are unnoccupied for a good reason without providing any detail of their analysis, assumptions or data.

        As for the increase, this is mentioned as a minor point against the frequent assertion that the ‘shortage’ is getting worse.

        Thirdly, my point is not that the 10.7% is excess. I can see how you might get to around 10% with some reasonable assumptions about the kinds of things you mention. I can’t see how you get far enough north of 10% to be happy 10% represents a shortage.

        Finally, the variance is not really the point. As per the first comment above, a shortage of housing in the inner city is not a housing shortage.

        • You’re right – if we could put people in these houses, any tightness in the market would disappear. The problem is that these houses are absolutely useless to put people in because they are in the middle of nowhere or the owner is on holidays. You’ve made the mistake of assuming what is true in aggregate is true of sub-markets.

          As for the analysis, the NHSC assumed that, since the reason for vacancy didn’t change much between 1976 and 1986, it’s likely that the reasons for vacancy are similar today. The NHSC had a table in its 2010 report with the breakdown, but you can Google 1976, 1981 and 1986 censuses to do the analysis yourself.

          You can also use ABS tablebuilder and mapping tool on the 2006 census data to see where the unoccupied dwellings are. I believe you’ll find that around half of the unoccupied dwellings are far removed from the capital cities.

          Finally, you probably think I’m a spruiker for defending the NHSC’s work. Please read my comments at if that is the case. I am *not* pushing the idea of a housing shortage to say that prices will never drop. I am saying that governments at all levels need to stop putting impediments in the way of housing supply, so that it is responsive to the needs of young families and people with lower incomes.

  7. anonysubscribe

    anz and the other banks fooled me and others when I bought and sold houses for my residential store of wealth. nsw govt’s homefund during keating’s recession induced madness fooled me into thinking I would be safe with the government scheme hatched by a spruiker from the US who sold me and other high fixed interest loans. I nearly went bankrupt. many did.

    polished liars in dark suits are the new evil which stalks the land, robbing citizens of their wealth while allowing banks to expand credit infinitely and spreak their risk to people who cannot afford to make wrong decisions. who tells our story?

  8. Charles Ponzi

    No shortage of houses for sale. I only see a shortage of houses priced at good value.

    • Exactly, there is no value in the Melb. property market because it is overpriced.

      This vid. may be dated but @1.12 min——he ( David McWilliams) nailed it in terms of there being no value for the Irish before the bust and could easily be speaking about our market here– in relation to the property price issue.


  9. Failed Baby BoomerMEMBER

    Anonys. You have obviously had a bad experience to be so talibanic. Are the polished liars in cheap suits real estate agents, or is their some other sinister group you are referring to?

  10. The discussion to date has been very interesting and I’m certainly in the camp that the demand story is overstated.

    But, the headline numbers in the Bloomberg story are comparing apples and oranges. In the the census data, the like for like 2006 / 2011 comparison for occupied homes is 7.1 against 7.8m.

    But some of these “occupied” homes can have multiple households (please correct me if I’m wrong…..I’m still wrapping my head around this). If I’m right, the like for like comparison on households between 2006 and 2010 is 7.9m against 8.4m. These data are derived form the Housing Occupancy and Costs Survey 4130.

    I’m guessing at the moment that the NHRC is using (or has been) the total number of households as its cental metric for demand. But some of these form group housholds, thereby pushing down total expected demand.

    I think that the market may be closer to balance than generally perceived and a bit more work to do here yet. But I do believe that the “demand” argument for floor under prices is somewhat weakened.


  11. JamesRickMEMBER

    Hi team

    I’m an avid lurker on this site…one of a growing many I would hope…and I’ve been wondering about a few things.

    Firstly I must say that I love the discussions on this blog…very informative and almost always educational.

    I guess as a gen x-er who is trying to survive the Politico Housing Complex, I’d really like to know how the shortage belief or lack thereof, really relates to the amount of debt that’s been created in the system over the boom decade…?

    I mean if there was a sudden shortage of debt wouldn’t that by necessity create a surplus in housing as many commentators here have already stated…?

    Isn’t that the crux of the European impasse…? Trying to counter debt with debt, instead of the no debt medicine that is needed…?

    It also seems that there is a continual discounting of time as a factor in the way this process of ‘change’ is taking place in the Australian Housing Market.

    There really isn’t any point in trying to fight the slow melt idea at this point, because its probably a fairly natural and logical disposition of a species proficient in survival, to lean back with full force when gravity first starts to have uncomfortable effects as you perch on the edge of a cliff…At some point on the way down the incline however, the need for speed becomes the logical method of surviving the fall.

    If there is an oversupply, which would be contrary to what the general and popular belief still is at this moment…when and how does that change. Is it media induced through capitulation due to irrefutable and undeniable data…? or is simply through a tidal wave of Chinese whispers on the ground that eventually finds it’s way to TT or ACA…?

    I’d love to be able to accommodate for a human behavioural’s opinion on how people actually react to information and obvious data, like the kind you guys work so hard to sort for your readers.Is it even relevant in this format to the average man on the street…? and if not what is…? How do you connect more effectively with your audience to tell them the real story…? How do you Anti-Spriuk…?

    For example, in a group of people, what is the magic number of individuals behaving in a contrary manner, that tends to change the system as a whole to create the group think(mob) mentality that has given us our non existent Bubble…? Is the stock on market increases evidence of this contrary behaviour right in front of our eyes, and what ratio do the current numbers signify…?

    is it one out of ten nervously sneaking out of the door..? two…three or four…? What number induces the stampede…? Is it a consistent representation in percentages perhaps…?

    I don’t know if anyone can answer any of these rambling questions…but whatever ideas are out there…would be more sense than the confusion that’s been in my head for the last few years…

    • Mining BoganMEMBER

      Wow, last time I saw that many question marks was on The Riddler’s outfit.

    • One’s a crank, two’s a movement, three’s a revolution…

      The problem is similar to a standing ovation at the theatre – When do you stand? When the quality of the performance is good enough, or when X many around you have already stood up? What about if you are at the front and can’t see anyone stand, how about if you are at the back? Maybe the attractive girl next to you stands, what then?

      Clearly we need more attractive people here at MB…

  12. JamesRickMEMBER

    Ha! But isn’t that the natural state of contrarians, of which many of the members here are…?

    BTW…where else would I go to get answers to questions no one else even believes should be asked…?

    • Mining BoganMEMBER

      Maybe not the natural state. I reckon I started to rebel when things weren’t making sense. So I started asking questions.

      Only after getting a few answers did I become a contrarian. Then I became a pest.

      So, in summing up, I would say that the natural state of a contrarian is being a pest.

  13. Bobby Fischer

    For those claiming undersupply, there appears to be a number of factors stacking up against you including:
    – Massive over-estimates by the NHSC of the number of Australian households (over 900K over-estimate) used to determine their modelling on future housing shortages

    – Admissions by the RBA several years ago that there is 8% surplus housing stock to the actual number of Australian households and that we have been consistently building homes in excess of the rate of new household formation since the mid 80s

    – Much weaker population growth than expected (vicinity of 300,000) in latest Census

    – Large increases in the number of vacant homes since the last 2006 Census (over 100K new properties added to the pile in only 6 years)

    – Recent independent, commercial attempts to ascertain the state of housing supply in Australia (Hometrack) have suggested that Australian may have a surplus of between 1 – 2 million homes (2009 report)

    – Prof Keen’s mathematical analaysis showing that we have been consistently over-building in the period 1985 – 2009, except for a couple of years after the GFC

    – Phillip Soos’ research showing that speculative vacancy rates are 2 – 3 times higher than reported by the REIV in Melbourne using water supply usage as a measure of whether a home is empty or not. This pattern is likely to also repeat in other capital centres around Australia meaning that MSM ‘vacancy rates’ are propaganda – pure and simple

    – Household formation is seeing an increase in the number of persons per dwelling in Australia – changing a downwards trend which has been in place since the beginning of the 1900s. An increasing ratio of persons to dwellings will only exacerbate any housing over-supply in Australia

    – America and Ireland also had a housing shortage, until they didn’t and a massive shadow inventory emerged. This is what happens in ponzi markets; there is excess production of the said good during the mania phase and post-bust, this inventory emerges.

    – American saw a large increase in the percentage of vacant homes after the housing bubble burst. In fact the percent of vacant homes reached all time highs for data going back to the mid 1960s (look it up Claw!)

    – Housing policy and taxation distortions, in addition to significant taxpayer largesse have made holding specker properties off the market profitable during good times, when double digit capital gains have almost been guaranteed for the better part of 2 decades. Now that is no longer the case, we can expect the greedy specufestors who have been riding on the back of the taxpayers to appear to try and claim their unearned rent (capital gain)



    • It would be interesting if census results could be found prior to the bubble on the percentage of vacant homes.

      If as is often put forward by claw et al that these vacant homes are genuine holiday homes etc then this percentage should be constant over time, certainly back into the 70’s.

      • Year,Occupied,Empty,% empty,total

    • Oh yeh? Try this list:

      -NHSC is just one mob doing modelling. Hundreds of thousands of renters weekly are paying high rents. These figures outweigh the figuring of some intellectuals.

      – Population growth was weaker than some expected. Probably caused by the high prices caused by the shortage of housing.

      – a report expected the world to end in 2009 so no need to build more houses. It didn’t, so more houses needed now.

      – Prof Keen uses statistical voodoo to deny the shortage. He has clearly been over-drinking.

      – Phillip Soos is surprised that many houses have little water usage. These houses are clearly not being used. They worsen the shortage faced by people who wish to live in a house and use water.

      – Household formation is seeing an increase in the number of persons per dwelling in Australia. Previously shortage-deniers claimed the falling ratio was proof of no shortage. What can they say now?

      – America and Ireland may or may not have had a shortage and may or may not have one now. Many people may or may not have believed this. None of this has any impact on the housing shortage in Sydney.

      – American saw a large increase in the percentage of vacant homes after the housing bubble burst. Australian census shows a large increase in the percentage of vacant homes (according to shortage-deniers). Clearly the Australian bubble too must have burst. Prices must rise from this point on.