Australian housing shortage myth

May 27th, 2008

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When it comes to solving Australia’s housing problem, there is an entrenched superstition that makes many believe that there is a housing ‘shortage’ in Australia. This superstition has resulted in many proposed solutions to the housing affordability crisis that are completely useless, wasteful and counter-productive. For many vested interests, it may as well be that such a superstition be propagated. But for the sake of our nation, it is in everyone’s interest that this superstition be demolished.

Back in November 2007, we said before in Myths on the Australian housing/rental crisis & its implications, the numbers from the Australian Bureau of Statistics (ABS) shows that from 2001 to 2006,

The increase in the number of dwellings far exceeded the population growth and household formation. Furthermore, the increase in unoccupied dwellings is almost triple the increase in population growth.

Therefore, there cannot be a real shortage in housing. As this article in the Sydney Morning Herald (SMH), Empty dwellings in a city desperate for places to live reported yesterday,

The number of unoccupied residential dwellings in Sydney counted by census workers in 2006 was 122,211, with the highest number found in the inner city. That does not include the thousands of empty warehouses, pubs, churches and shops.

Below is the map of the unoccupied dwellings based on the 2006 census data:

Number of vacant dwellings (per local government area)

We can expect the numbers to be increasing from 2006, due to mortgage defaulters. If there is no housing shortage, then any solution to the housing affordability problem that involves building more houses (i.e. increasing the supply of housing) is a complete waste of resources. As that article quoted Mr James,

“You get the property development industry bleating about how they need to produce 1000 dwellings a week to meet housing demand,” he said. “I say to them, “Well, guys, there’s 120,000 houses out there you are not doing anything with.”

So, what is there such a superstition in the first place? In reality, the housing ‘shortage’ superstition is the result of an illusion. The illusion arises from the fact that there is a mismatch of housing demand and supply. In some parts of Sydney, there is an over-demand for housing, which gives rise to the housing ‘shortage’ illusion. In other parts of Sydney, there is an over-supply of housing (some of them brand new) that are unwanted.

Of course, we can expect vested interest to be in denial of this problem. As this article in the SMH, Empty homes now for all to see, reported today, NSW president of the Property Council, Ken Morrison said,

“Vacant properties tend to be very much third-tier-quality building held by private owners who have some sort of other objective for the property than income yield,” Mr Morrison said. “You just don’t get perfectly tenantable apartments which are vacant.”

Really? Fortunately, there is a web site, Bubblepedia, which “has a maps section and an image gallery so readers can send in pictures of the buildings they believe are going to waste.” An example of a block of brand new overpriced apartments (in Parramatta, Sydney) that had been mostly vacant for 18 months:

Apartments. Overpriced not many sold. Been available 18 months

 

The link to this photo at Bubblepedia web site can be found here.

The statistics from the ABS tells us that there is an overall glut of empty dwellings in Australia. Anecdotal evidence from the Bubblepedia shows us the real-life photos of vacant housing. Now that this web site has gained publicity in the mainstream media (it crashed today due to overwhelming traffic), we will get to see more pictures of empty dwellings that had gone to waste.

So, what is the implication of the housing ‘shortage’ being a myth? First, many of the so-called proposed ‘solutions’ to the housing affordability problem have to be abolished. As we said before in Myths on the Australian housing/rental crisis & its implications,

As a result, many of the conventional solutions to the housing/rental crisis will not work. Therefore, the only sustainable solution is to introduce/change policies that will encourage a sustained decline in property prices (e.g. remove Capital Gains Tax exemption, close negative gearing loophole)- we recognize that such solutions are politically costly (nobody wants to see the value of their property fall). If the government will not make such a move, then sustained interest/mortgage rates rise will have to step in to do the job.

In addition, land has to be more efficiently used. For example, in Sydney, if you drive along Parramatta Road towards city, you will find rows of old double-storey shop houses. These should be demolished to make way for high-rise buildings.

Furthermore, Sydney is under-developed and under-maintained in terms of infrastructure. For example, there are many brand new housing estates in outer suburbs of Sydney that remained unattractive for buyers because they are located in relatively remote locations that are under-serviced by infrastructures such as transport.

So, why does Australia have a housing affordability problem? Three words to sum it: mismanagement, speculation (see The Bubble Economy) and hoarding.

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