No housing bubble, but risk of housing starts heading south: Glenn Byres

Talk of a housing bubble is "simply hot air," says the Property Council’s chief of policy and housing, Glenn Byres.

Official data from the Australian Bureau of Statistics released last week signals a warning, he suggests, with the 5.1 per cent fall in building commencements and 2.3 per cent drop in completions for the December quarter suggesting the construction boom has passed its peak.

"While the number of commencements and completions over the past 12 months remain at record highs – reaching 220,887 throughout 2015 – there is now a real risk that housing starts could head south," Byres says.

“We only risk a housing bubble if we are creating demand that won’t be met.

"There will be pockets and cycles in individual markets, but overall the reality is the opposite – we have a shortage of supply.

“The fundamentals that support housing markets are very sound. The economy is growing, jobs are growing and our population is growing.

“At the same time, we have challenges on the supply side. When you piece these things together, there’s nothing to suggest the market is operating at anything other than normal speed.”

While the increase in housing supply has been much lauded over the last two years, Byres is more circumspect.

“This is the first time we’ve seen a balance between supply and demand in more than 10 years. We are only just now hitting the levels of supply we need. In capital cities, particularly Sydney, we are still playing catch up on the big deficit that accumulated over the last decade.”

He advised Australia was currently adding an extra million people to its population every three to four years, and numbers in our four largest cities – Sydney, Melbourne, Brisbane and Perth – are expected to double within the next 15 years.

"Sydney will need an estimated 664,000 houses over the next 15 years just to keep up with this growth.

“We know most of our nation’s growth is going to happen in the ‘big four’ capital cities – and that’s where our challenge is most acute. We have fallen a long way behind in supporting this growth with the infrastructure and housing we need. Until we get ahead of the curve, we risk landing on the wrong side of the affordability equation.”

While New South Wales saw the largest increase in commencements in 2015, up 19.1 per cent for the year, Byres says the 14.0 per cent fall in the December quarter is a marker for concern.

“It is a reminder that NSW needs to get cracking and fix up its planning system, which is still the most dysfunctional in the nation.”

“We need policy solutions in place that reduce the time, cost and red tape on projects and make it easier to deliver a sustained period of strong supply and improve affordability over the long-term.”

Byres says the choices are simple: smart growth or dumb growth.

“Growth is coming – but dumb growth involves turning off housing supply, tying up markets in red tape and pushing up prices beyond the point at which the average person can enter the market.”