Australia’s property market has defied a basic economic tenet in recent years: that supply has exceeded demand but prices have continued to climb regardless, according to new housing research.
While auction clearance rates in the two biggest markets, Sydney and Melbourne, have fallen considerably in recent months, with price growth softening along the way, and concerns of a looming apartment glut, researchers from the Australian National University (ANU) believe the nation already has a housing oversupply of up to 164,000 dwellings, including in the major capitals.
ANU Professor Ben Phillips and researcher Cukkoo Joseph compared Census data and building approvals over the last 15 years for their paper, “The Regional Housing Supply and Demand in Australia Working Paper“, and concluded even inner city Sydney, Melbourne and Brisbane have an excess of stock.
If true, their findings debunk the oft-made claim by politicians that one way to tackle housing affordability in capital cities is to increase housing stock.
The duo found inner Sydney has nearly 6,000 more dwellings than currently required — an oversupply of around 5.2%, and inner Melbourne, the country’s second hottest housing market when it comes to prices, at a similar level with a 5.3% surplus at around 4,000 dwellings.
That figure jumps to a massive 12.7% for inner Brisbane, with Surfer’s Paradise also in a double-figure glut at 12.3% oversupply, which adds to concerns that more than 400 building companies are at “high to severe” risk of failure in the region over the next 12 months.
Canberra also has a housing surplus, especially for higher-density dwellings in the town centres.
The apartment boom in the capitals has been bigger than population growth, so in some respects, foreign investment has helped maintain demand. New research from the RBA suggests foreigners buy one quarter all new apartment stock.
But rather than tightening supply, the RBA’s head of financial stability, Jonathan Kearns, says “furchases by foreign buyers do not, on the whole, reduce the supply of dwellings available to local residents and in fact may actually contribute to expansion of the housing stock”.
Meanwhile, Professor Phillips warns that a lack of a shortage could have “significant implications” for housing policy and the economy more broadly.
“If this research is right, it suggests we’ve built enough dwellings, and there’s not likely to be any great gain in building more houses in addition to what’s required,” he said.
“If Australia’s current record home-building levels are not balanced by a large housing shortage, then there is the risk that these current levels will reduce in the near future.
“Policy makers will also need to place greater emphasis on other potential drivers of house price growth and housing affordability, such as a range of demand influences.”
The issue for the major capitals, particularly Sydney, was modest housing shortages in the middle and outer rings of the cities.
Their modelling suggests that there is some evidence “albeit relatively weak” that a housing shortage was associated with higher house price growth.
And while nationally, there have been periods of significant under-supply, most notably between 2007 and 2014, oversupply in six years leading up to the GFC and then again, after 2014, more than compensated for that period, while price growth shows no real link over that time.
Their analysis tried to look at underlying demand, but did not grapple with whether people’s housing needs are being met or affordability.
The duo’s modelling took into account factors such as changes in household types, dwelling types and unoccupied dwellings which they believe had not been taken into account in-depth in other studies, especially when it comes to regional Australia.
“We recognise that housing markets tend to be regional and that house price movements and affordability are likely to be as influenced by local demand and supply conditions as by broad national conditions,” Phillips said.
While inner-city areas were in oversupply, outer suburbs and regional areas such as the Shoalhaven, south of Sydney, and Wyong on the Central Coast, as well as the Mornington Peninsula, south of Melbourne, had housing shortages.
Sydney’s inner-west — Fairfield, Strathfield, Burwood, where the NSW government is currently focused on increasing population density, also had minor shortfalls.
But the break in the link between supply and demand when it comes to prices was notable, the researchers found.
“The surplus is not particularly substantial, but certainly suggest that housing supply in and of itself is probably not the primary driver of house-price growth in Australia. There are other factors that are going on,” Phillips said.
“The standard line of governments and industry seems to be that housing supply is a big problem in Australia. No doubt there are some areas where it is. But overall we don’t see the housing shortage that’s often talked about – in fact we see that there is a surplus.”
In regional areas, housing stock was often linked to the mining boom and are now in surplus.
“Particularly in outback Western Australia, regional WA and north Queensland, many of these areas have a housing surplus,” Phillips said.
“We’ve found that we’ve built more than what population growth would require.
“It doesn’t mean that it won’t get soaked up in coming years, but it does suggest there won’t be as much need for new home building in the near future, which could have knock-on to the broader economy.”
Here’s where they found housing surpluses and shortages in Victoria, NSW and Queensland.