Does Australia have a housing supply problem?

Westpac CEO Peter King believes that Australia has a housing supply problem, which he claims is exacerbating price growth and pricing young people out of the market:

“In relation to what’s driving housing prices, it’s from my perspective supply and demand so one of the ratios we look at quite a lot is new listings to sales and it’s still out of whack (more sales than new listings)”…

“I don’t think bank debt is a driver of the housing prices, I think it’s a fundamental supply demand issue”.

Accordingly, Peter King has called for policy makers to urgently address the supply issue, rather than opting for regulatory lending restrictions or tax reforms like negative gearing:

“I’d lean to more supply, actually… let’s look at how we can create supply”…

King is partly right and partly wrong.

Australia does have an issue with ‘market supply’, which is the number of homes listed for sale. This has collapsed to record lows, according to CoreLogic, running around 30% below the five year average:

Australian property listings

Total for sale listings have collapsed to around 70% of ‘normal’ levels.

This comes against a big pick-up in buyer demand, which has pushed house sales to recent historical highs:

Australian property sales

House sales are tracking at record highs.

Therefore, there is definitely a large undersupply of homes listed for sale relative to demand, which is helping to push prices higher.

On the other hand, actual fundamental supply is running strong. Dwelling construction is booming on the back of HomeBuilder at the same time as actual household formation has collapsed via the loss of migrants. Accordingly, the National Housing Finance & Investment Corporation (NHFIC) has forecast a massive structural oversupply of homes in 2021 and 2022:

Australian housing supply versus demand

Australia will build far more homes than are needed, according to NHFIC.

The question is: which supply issue does Peter King wish policy makers to solve?

Encouraging greater levels of new home construction won’t solve the lack of for sale listings, but will add to the structural oversupply of homes being built. It won’t fix the problem that he is concerned about.

Unconventional Economist
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  1. “I don’t think 1.99% interest rates is fuelling demand” and RBA saying rates will be low for years .., is he joking

    Don’t worry Peter there won’t be a supply issue because Westpac (you) will be the main seller next year

    Your next 2 problems will be you won’t find a buyer and you won’t be getting all your money back

    If I were you I’d be thinking a plan to solve those 2 problems you have next year

      • 5 Houses for investorsMEMBER

        There/s only a shortage because geared tax-advantaged investors have 4 houses each. Investors can offer 20% more than owners, as they deduct the interest losses.
        So the rest of you can rent.
        If there are more units produced investors will move to 5 or 6 houses per person.
        Or see politicians such as Tim Wilson and his 5 properties.

        • That explains high prices to buy. Now try to explain why rents are high.
          An overall shortage of housing explains the high rents. Investors cannot force up rents without a shortage.
          More houses or fewer people are needed to solve the problem, not tax changes.

          • mikef179MEMBER

            I would say the fake prices are basically leading to a lot of malinvestment which is creating the issues that you talk about. It’s just a huge stupid mess at this point, and the idiots in charge just keep doubling down.

  2. “I don’t think bank debt is a driver of the housing prices, I think it’s a fundamental supply [and] demand issue”

    The first part of the statement above is, by definition, wrong and the second part, by definition, is always right.

    Why is the first part wholly wrong? Because virtually all house sales have an element of debt and, if that debt were not available, the sale would not happen (or would only happen at a lower price).

    The second part is always right because, in any market, rising prices indicate a greater propensity to buy than sell.

    The important question is, if there is a greater propensity to buy than sell, why is that?

    Leith, of course, knows the answer to that better than almost anyone.

    Too much net immigration (too many people), the availability of negative gearing (reducing the cost of acquisition) for a lifestyle asset and too much available debt (based on the circular notion that since houses are going up in price banks can lend more against them).

    It’s not complicated. It’s the “Game of Mates”.

  3. I think it’s more of an overall Productivity problem
    As seen from within the bubble real world productivity is unimportant because we can continue to function and enjoy full employment even at extremely low levels of real world productivity just so long as the money flow remains uninterrupted.
    We’re even convinced ourselves that efficiently creating “product” is unAustralian, this search for efficiency would apparently deprive some other Aussie of a “good” job. It’s just how it is.
    For me the wide spread acceptance of the above forms the core of our value system and is key to understanding our obsession with real Asset ownership. With this mentality we will always have Asset inflation especially for assets like Real Estate because everyone knows that the process by which we transform available land and building raw materials into a finished house is extremely inefficient.
    I have no idea how any economy ever escapes from becoming stuck in this mode, Economist’s would point to their “Invisible hand” but if you ask me this Invisible hand is driving us harder into the very dysfunction that we need to escape from.
    All that I know with certainty is that every sustainable solution requires a return to an environment where Labour and Capital Productivity are rewarded.

  4. No, absolutely not. The RE and residential development industries combined (lobby/PR propaganda) forces over a decade ago and have been running with the “supply” “lack of” fear BS for donkeys ears. Peter King is well entrenched in it and well done UE.

    Australia has always been a complex arrangement of acute and deliberate factors that have led to marvelous RE inflation.

    What’s currently conveniently being ignored and deliberately being left out of media articles is the fact that Australia’s reaction (governments and media) to Cvd has caused VOLUMES to be minimal but fear and FOMO to be maximal. People here are still scratching their heads why RE inflation is through the roof… LOW VOLUMES plus fear (esp FHBs). Cvd has been the the most potent form of population control by means of fear since ww2. Added to that Jobkeeper and low mortgage rates – the effects of both won’t even last 12 months as JK is turfed and US rates rise.

    I might add I was the only one here a year ago saying RE would rise 15% in the following year.

  5. Australia absolutely has a supply issue and that is of good quality family homes. These have disappeared (well knocked down) to make way for shoddily built apartment blocks. Seen many go in my area and replaced with one or two bedroom apartments which people don’t want to live in long term. The apartment blocks are unlikely to last long term either. Now with COVID, everyone wants 3+ bedrooms and a bit more space.

    • Not quite. The supply of those homes was fine and more than adequate for the existing population sans insane immigration policies and welcoming governments of both sides regarding Chinese with money – whether it be from criminal activities or otherwise.

      The 3 bedroom good quality homes in the 2 cities in Australia are being consumed by wealthy Chinese or developers selling to new migrants. The sellers of the homes (boomers either themselves or on behalf of their deceased parents) are shifting regional. Flow on effect. Buyers in Australia pay the maximum of what they have or can borrow – it is a unique culture. Mass thick-headedness reigns and governmet mates relish.

    • Ridiculous. Fiddling with tax does not magically make more houses appear. We do not have one decent home per family in this country. That is a shortage that requires more decent houses or less people to fix – not a tax fiddle fantasy.

          • I assume you mean the number of people buying. So YES.

            Negative Gearing encourages loss-making “investors” to buy more property than they otherwise would have. In a shortage situation this results in potential owner-occupiers missing-out more than they otherwise would have.

            How does this change the “number” of people buying? I suppose it reduces it. 10 homes are bought by 4 investors instead of being bought by 10 owner-occupiers. So the number buying is reduced from 10 to 4 in my example.

          • Cynical snake

            Would it have an affect on the number living in houses?
            That’s the number that matters.

  6. structural oversupply of homes being built

    Spare me. There is no oversupply. There is an extreme shortage of housing.
    Evidence? Look at rents, look at prices. Never been higher. Look at rent to income ratios. Look at homelessness. Look at poverty.

    Oversupply my arse!

    • pfh007.comMEMBER

      Thanks Claw,

      You saved me from commenting.

      Well as I am here now.

      “.. Accordingly, the National Housing Finance & Investment Corporation (NHFIC) has forecast a massive structural oversupply of homes in 2021 and 2022:…”

      Complete BS.

      When the residential vacancy rates across australia average at least 4% then we can start talking about a healthy market.

      At the moment they are barely 2% across most of Australia.

      People talking about a few extra houses as though they emit poisonous gases and attract homeless werewolves.

      A few extra empty houses at any one time exerts downward pressure on prices and rents and makes vendors and landlords try harder.

      • Empty houses profitMEMBER

        Even empty houses go up 10% a year and is negative geared any losses anyway. Many landlords (and also Meriton) won’t drop the price and stays empty for months. Retail price maintenance.

        • pfh007.comMEMBER

          Yes there are lots of empty houses that for one reason or another owners do not wish to rent.

          The same can be said for bedrooms in empty nest houses.

          Both of those problems are reduced by adopting a target of AVAILABLE rentals of at least 4% as the risks of capital losses from falling prices are greater when there is a greater risk of zero income for an extended period.

          Downward pressure on rents makes it much more difficult to sell BS visions splendid to investors. That in turn will affect the number of people who are willing to hoard property as they no longer see capital appreciation as a no risk bet.

  7. Ailart SuaMEMBER

    Firstly, the Australian economy will totally collapse in the absence of continually rising house prices. There’s many reasons governments have opted for this property, debt and endless migration Ponzi – neoliberalism, governments taking direction from global players such as the BIS and IMF, ‘copy-catting’ economic policy from the US, UK etc, central bankers, who’ve got governments in one ear and the IMF and BIS in the other ear and not knowing whether they’re on their elbows or their arse-holes.

    Then we have the next level of players fanning the property Ponzi. Most are elite political donors – developers, large banks, the real estate industry, importers of building supplies – and let’s not forget main-stream media. And BTW, speaking to someone in the construction industry last night – the ‘supply problem’ is all about building supplies, not supply of dwellings or land. 99% of construction materials are imported! I’m sure you’re aware Australia doesn’t make things any more. Apparently, one of the major drivers contributing to the lack of construction materials, has been government hand-outs to home renovators.

    • Firstly, the Australian economy will totally collapse in the absence of continually rising house prices.

      The Australian economy should be collapsed as soon as possible.
      Life will go on without the “continually rising house prices economy”. The things that matter will still occur. People will still breath, drink, eat, sh!t and root without the ponzi economy.
      Farmers will still grow and sell food without banking parasites.
      School Teachers will still eat the food grown by farmers and continue to teach the next generation.
      Ships with wheat and coal will still leave Australia, and ships with cars and oil will still visit Australia.
      Solar panels will still collect. Coal turbines will still spin. Rivers will run, dams will fill, faucets will function.

      • well said!
        90% of the economy will keep ticking over even if housing prices go into free fall
        If today’s economy returns to a state where work is rewarded then all the small producers in Australia (Farmers manufactures …) will finally have their day in the sun, they’ll finally see that their labour and knowhow are a valid path towards wealth accumulation.

        • Ailart SuaMEMBER

          The prerequisite for that, is governments shifting focus from asset-inflation, debt and high immigration to what you speak of. I hope it happens – but it’s unlikely it will. There’s no limit to the amount of new currency they can create – and there’s negative interest rates lurking in the background. The only solution is a hard one, requiring Constitutional and electoral change – but I don’t think the citizens are united or aware enough to pull it off. Too much focus on bickering, footy, grog and watching the price of their houses head north. Precisely the environment the establishment lives and breaths on.

          The degradation of living standards is gradual; small enough so that each new generation doesn’t notice. Sure, housing affordability is being noticed, but that’s being blamed on the boomers, so governments and elite donors – the real cause of housing unaffordability are out of the spotlight. Wake up Australian citizens.

      • Ailart SuaMEMBER

        “The Australian economy should be collapsed as soon as possible.”

        Couldn’t agree more. The problem is, governments and RBA won’t allow it to happen. If it came to the crunch, negative interest rates paying borrowers to take out and refinance mortgages would certainly be on the cards.

    • Cynical snake

      “the ‘supply problem’ is all about building supplies, not supply of dwellings or land.”
      The supply problem is mostly a shortage of land zoned residential, and a concentration of jobs in the big cities.
      Building supplies are a long distant third if at all.

      • Ailart SuaMEMBER

        Not what I’ve been hearing from people in the construction industry. I’ve noticed it myself – even at hardware stores. Do you have concrete evidence that it’s land shortage and concentration of jobs in large cities? Those scenarios have been around since Jesus was a boy. Developers always winging about shortage of land.

  8. kierans777MEMBER

    I hope these banksters and property developers are the first to starve as we continue to concrete over our food bowls and destroy our water catchments. They wont, it’ll be the poor people who will but these fools deserve it!

    • mikef179MEMBER

      Yep. If there was some better investment with a large amount of liquidity people would be going there instead. Encourage people taking on massive amounts of debt with no real place to go other than real estate and I don’t know why people would expect anything else than prices going up.

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