"Housing shortage is a myth": Report

The government's claim that increasing home prices are due to an underlying imbalance in demand and supply is not true, according to a new report.

LF Economics' Housing Supply in Australia report draws a parallel between Australia's current market and the United States property market before the global financial crisis. The report's author, Lindsay David, writes that the American housing bubble was "blamed on a phantom shortage", which was proven untrue after the market crashed. Instead, writes David, there was actually a "massive oversupply of houses in the market".

"Every country that has suffered through a housing cycle in recent years had so-called experts claiming capital prices were based upon fundamental factors of supply and demand," reads the report.

"Unfortunately, economists considered these housing price booms to be efficiently based, so there was no need to actually test for a shortage – they are considered to exist by definition."

According to the report, Victoria is of "particular concern", with the greatest rise in housing prices but also the "largest cumulative oversupply of dwellings at 123,000" – three years' worth of excess supply.

The report determined that to cope with its growing population, between 1996 and 2014, Australia should have required a new dwelling for every 2.6 new residents. The LF Dwelling Supply Index compares the amount of new housing supply to the influx of new residents.

According to the report, while there have been some periods of undersupply, from 1996 to 2006, there was an oversupply of housing in Australia.

David attributes the surplus period between 2007 and 2009 to the global financial crisis, which lead to a moderation in construction while population growth increased.

"A deficit existed between 2011 and 2013, again moving into surplus as population growth has again slowed and another boom in dwelling construction has taken hold, especially in the capital city apartment markets," David writes.

"Given the uptick in dwelling completions and residential projects in the pipeline, a surplus appears likely for the next several quarters."

The report concluded that there is no connection between housing prices and the rise in home prices recorded since 1996.