Rising Population, Falling Construction
In recent years the Australian population has been growing at over 300,000 people per year yet our housing stock has shown no corresponding rise. In fact, in the last year or so construction has fallen below the twenty year average.
In this first graph ‘NOM’ means net overall migration – Australia has always been a nation of immigrants so the net figure is positive.
As can be seen there was a spike in immigration commencing in 2005 and falling off somewhat after 2008 although the annual intake is still at a historic high level.
In contrast the graph below shows housing completions oscillating around the mean of slightly less than 150,000 per annum and currently below the 28 year average.
According to the Housing Industry Association “we are currently building 25,000 homes less than we were ten years ago, and last year built around 10% under average over the past decade.” Looking at the graph above (ABS figures) we can see that this is so.
One of the primary reasons for the under construction appears to be the absence of first home buyers from the market. Presumably these people remain living with parents, joining others in house sharing or working overseas for extended periods. And of course in recent years rental vacancies have been very low so many of them are renting in preference to buying.
In dollar value terms we can see that they are not in general buying new properties. We can see from the graph below that investment in new housing (lower line) has only slowly increased over the last 28 years while investment in existing dwellings (upper line) has substantially increased (from a paper by Phillip Soos, as presented in NewCo News October 2012).
A significant reason for the absence of first home buyers from the market is affordability. We know from the graph above that existing dwelling expenditure has increased very significantly over the last decade or so. Old houses and units tend not to increase in value but the land on which they sit usually does and this is made very clear in the graphic below from MacroBusiness.
Sydney has clearly come back to the national average cost but the other capitals have moved abruptly upwards in recent years.
It seems clear that unless constraints on land supply are relaxed prices will continue to rise and eventually only the most privileged first home buyers will be able to enter the market.
This is not a problem that lower interest rates alone is likely to solve.
Article courtesy of http://newco.net.au/