Increasing supply to cure housing affordability can temper price increases
Price growth for any given suburb, capital city or the nation is a complicated process relating to many positive and negative factors.
But there has been an emerging mantra for some time, especially among politicians, that any increased supply of the housing makes a big difference to affordability and improved access to the property market.
The 2004 Productivity Commission report into First Home Ownership suggesting that rising house prices indicate ‘demand has been outstripping supply’ laid the basis for this simple assumption.
A new research paper however suggests that a housing shortage in any given region does not necessarily cause price increases and, conversely, that a surplus does not guarantee a decline in house prices.
It seems the fluctuation of house prices is rather more complex and dynamic.
The report on home-building and population growth by ANU academics Ben Phillips and Cukkoo Joseph concludes that increasing the supply of housing can temper price increases, but only to a limited extent.
They concluded that while increasing housing supply has some benefits, it was not likely in isolation to create affordable housing in Australia.
It seems simple supply rules do not apply to property; they added, at least not in the rules applicable to ice-cream or bananas.
In our recent low interest rate environment, price exuberance was always expected. Then there's population growth pushing prices along, local and migrant. Foreign investment, which we are still figuring out, plays a significant role.
A hapless share market has been an influencer too, I'd suggest in our pursuit of property over recent times.
There are a range of potential drivers of price growth through government policy, not the least investors receiving benefits from the tax system through the combined impact of negative gearing and discounted capital gains tax arrangements. First home grants are back in a big way. There's also the exclusion of the family home from pension assets testing.
The report acknowledged the uncertainty surrounding the nature of unoccupied dwellings, but concluded the net additions to the Australian housing stock was greater than required for underlying demand during the period 2001 and 2017.
They suggested by one calculation that Australia built too few dwellings for most of the period between 2007 and 2014, though between 1998 and 2006 we built more than was required. The period after 2014 had been a period of over-building.
The new research compared housing demand and supply at a sub-regional level, with their analysis pinpointing inner Sydney residential building as running well ahead of local household growth for the past few years.
Yet prices have not come back.
There was a deemed significant surplus of stock in inner Sydney, surplus to what they calculated as underlying requirements.
Inner Sydney's surplus of 5,900 dwellings, the largest of the 328 regions covered in the research, equated to 5.2 per cent of the total stock.
Most of the inner-north and inner-south of Sydney was also in surplus, based on their criteria.
The housing shortages of Sydney were found in the mid-west and far-west of Sydney in regions such as Fairfield, Strathfield, Bringelly, and Hurstville.