CHARTS: Australia's 'significant' housing shortage

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Even with the recent residential construction boom, something that has seen the skylines of Sydney, Melbourne and Brisbane scattered with cranes for the best part of three years, Australia housing shortage remains significant.

According to a research note released by the ANZ earlier today, the bank estimates that Australia currently faces a shortage of 250,000 dwellings, equating to deficit of 2.6% based off Australia’s current housing stock (9.6 million).

“Following a review of ANZ Research’s estimates of Australia’s underlying housing market balance, we conclude that the national shortage of housing remains significant at approximately 250,000 dwellings, albeit lower than previously estimated,” said David Cannington and Justin Fabo, economist at the bank.

“Our estimates indicate the Australian housing market is a long way from being in structural surplus. Our forecasts for housing construction and underlying housing demand point to a modest unwinding of the current housing shortage in coming years.”

The chart below, supplied by ANZ, suggests that Australia’s housing market is far from surplus at present.

Even with the record-breaking building boom currently underway — something that has seen completions overtake underlying demand for the first time in a decade last year — the nation’s housing shortage is expected to moderate only slightly in the years ahead, in the bank’s opinion.

They explain.

Until recently almost a decade of underbuilding has driven a sharp run-up in Australia’s underlying housing shortage. Assuming that the housing market was in long-term cyclical balance – that is, the market wasn’t maintaining a long-term cyclical surplus for a 20-year period to 2005 – housing construction levels have only recently ‘caught up’ to annual housing construction requirements. That is, the surge in higher-density housing construction has driven housing construction levels to match annual underlying housing demand for the first time since 1995.

Fitting with the national assessment, Cannington and Fabo suggest that most states and territories face a housing shortage at present, led by an chronic undersupply of dwellings in the most populous state, New South Wales.

Though the housing shortage is forecast to moderate slightly in the years ahead, something that may help to alleviate price pressures as a consequence, Cannington and Fabo suggest that those markets that remain in shortage are likely to remain well supported over the long term in the absence of a deterioration in household incomes.

“An underlying housing market shortage (or existence of pent-up unsatisfied housing demand) does provide significant support to the long-term level of house prices, offsetting the downside risk to prices from short-term/cyclical factors,” say the pair. “Looking ahead, markets with significant unsatisfied housing demand, particularly Sydney, have limited downside risks to prices absent unexpected shocks to household incomes.”

Over the short term, they suggest that markets currently experiencing strong growth in new housing completions, or with weak population growth, are likely to be more exposed to cyclical price falls than other markets.

In addition, markets that are balanced such as Adelaide, Hobart and Canberra will be more exposed to regional economic conditions, in their opinion.

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