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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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This entry was posted on Tuesday, May 27th, 2008 at 9:31 pm and is filed under Property. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

  • Mike
    Ed says "Again, wrong. Take a look at the picture 71 at Bubblepedia. That’s a BRAND NEW block of apartment in Parramatta."

    Mis-investment, who wants to live on Paramatta Rd, especially where this building is, it's on Parramatta Rd and miles from the city. Would you live there?

    All the empty dwellings on the outskirts of the city are just mis-investment, they are overprice houses in areas where people don't actually want to live or they can't afford them anyway.

    Mis-investment does not aleviate shortages.

    The premise of your article is that the media and vested interests have made up the housing shortage, I don't think this is the case I think when they talk about the housing shortage, they are talking about houses people can afford to live in, in locations where people actually want to live.

    It's easy to say there's a lot of empty houses in locations where people either don't want to live or can't afford to live, but how's that going to fix a shortage.

    Especially for young PAYE families, there's a real shortage of dwellings they can afford.

    I really enjoyed your article, lots of food for thought as always.
  • Mike
    Ed says "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."

    I was only pointing out that just because a house is empty (according to the census) doesn't mean it's not being used. And the areas with the highest number of empty houses, have the highest amount of renovation (the house is being used). The city of Sydney has 7312 empty dwellings, a lot of those are probably short term rental apartments that just weren't being used on census night, they are empty, but in use.

    3-4 % of dwellings were probably just empty on census night because the owners were on holiday, that's 65000 of those 122111 houses counted as 'empty'.

    Out of the 122211 empty dwellings, how many are actually available for supply to the market. I think it's a lot less than you think. Probably 10-20000 are actually available for supply to the market, a lot of those are probably in poor quality areas or in un-liveable condition.

    So I think that it's perfectly possible to have 122211 empty dwelling on census night and the market to be tight.

    Ed says "From what we see, it is not a problem of outright shortage- rather, it is a mismatch between supply and demand."

    I think there's a real outright shortage of housing in good condition in areas people actually want to live. That is a real shortage.
  • Pete
    Mike:
    Isn't a house that is being renovated, an empty house? It is not generating an income, and no-one is living in it. It is contributing to the supposed 'housing shortage'.

    Why are 11 houses in 2 streets being renovated anyway? Those houses are foregoing an income to either a) attract higher rents, or b) sell at a higher price (I cant think of any other reasons, maybe tax writeoff?).

    This totally makes me think of:
    We sold Grandpa's house to a flipper.

    I think being a flipper is a dangerous business nowdays. Thats a lot of money that is essentially leveraged against you (even if you don't borrow), compounding losses if house prices fall.

    You are correct in saying that empty big unit developments would contribute to these statistics...but if so, how can anyone complain of a housing shortage? Maybe people are too picky and want a house instead of an apartment?

    I think too much of this 'shortage' is hype, and not enough is reasoning within the right context - eg, showing that some suburbs have shortage, others have surplus, rather than stating "all of Sydney is in crisis!" - which is more or less what Temjin mentioned earlier.
  • Mike
    I look at these figures and mostly see not many empty houses. Huge amounts of these houses aren't in fact 'empty' but just not being used for the time being.
    My house was one of these 'empty' houses, it was empty for 3 months while it was sold to us and then another 6 months while it was gutted and restored (It was counted as empty on census night). In my street in Camperdown there are 6 'empty' houses at the moment, all are in fact having extensive renovations, the street over has another 5 'emtpy' houses, all being renovated.
    When the Leichardt council only has 2065 empty houses and I can count 11 in 2 streets that are 'empty' but not really, I think it's fair to say there aren't in fact many unused houses at all in the Leichardt area.
    I also wonder how many completed but not yet occupied houses and units are included in these figures, it only takes a big unit development to bump up the figures by hundreds of dwellings.
    The growth in empty houses is probaby more to do with people choosing renovations instead of purchacing new houses.
  • Pete
    Great article, thanks! :)

    Living in Canberra, I tend to find the situation is slightly different here to the rest of Australia, which is a bummer. But still, people will not believe that there are empty houses anywhere. I have overheard many conversations about 'real estate investment' and shortages and it concerns me at how uninformed some people are. I do not believe it is my place to inform them, because unlike this blog where we seek the information, trying to influence the investment ideals of peers is akin to telling them how to spend their money, which party to vote for, or even what religion is the right one.

    Bubblepedia has some nice info on it too, I quite liked reading that.

    I agree with Temjin, who made some good points, and Zoo as always made some interesting points too, although if we can find alternate electricity sources that are viable, then the problems Zoo highlights may not be such an issue. And your points were good too Ed.

    Its a strange issue really, because people looking for answers expect to find a dominant answer to the question "why is there a housing problem?". My answer would generally be "easy credit" because it was an enabler. But it is clear that there are just so many factors to this equation.

    I think I may have just hit on something actually (profoundly...um), that politicians are powerless to solve this problem, because they will always try and solve it in one or two key ways. And this problem has so many faces that trying one or two things will not solve the problem at all. I think economic deflation will solve the problem and expose some of these interesting lies for what they are (lies like 'rental shortage', house prices always go up, etc).

    Please excuse my rambling
  • Zoo
    CI, Re is it a reasonable expectation to want to live in a house with a garden, I would say that highrise living also has a social cost.

    In Singapore they can get away with cramming their population into high-rise apartments because people live under an authoritarian regime and they forego their right to individual choice. Yes, central planning for "the correct cultural mix" and beating those who spit chewing gum on the pavement has succeeded in making Singapore a place to live. But on the other hand, look at the kind of social outcomes that occur in the UK's high rise estates: drugs, gangs, out-of-control knife-crime, extreme social intollerance ... that is the reality of highrise for the masses in a highly urbanized democracy. High density living also has an ongoing monetary and environmental cost: think about how much it costs to build and maintain the infrastructure of water and sewage systems to service this kind of living.

    If peak oil is here, or if it is coming in the next few years, and given that global warming is occuring, then politicians and urban planners have some tough problems to address, because "highrise" in Australia is very much the child of a fossilfuel-dominated system which seems to be in its death throws. It only makes sense to live crammed ontop of one-another if you don't have to generate your own energy or worry about where your food comes from, and these things are increasingly worrying now. What would highrise life be like if trucks could no longer haul fruit and veg to a nearby supermarket or market? What would highrise life be like if there were power outages and the elevators in your building stopped working? Or water could not be pumped up to your 10th story flat? Or the airco in your highrise workplace breaks down and the building's backup generator has no fuel to run on during a pleasant 40C summers day? I am not suggesting that this is an immediate longterm concern (although the prices of oil at present will start testing us all), but given the future conditions we seem to be facing, I am not altogether sure that highrise urban living will be an attractive or sustainable proposition as the years pass.
  • Temjin
    Another nicely written article there, Ed!

    I caught on the bubblepedia website from another forum yesterday, and yep, definitely had trouble trying to access it. It is still fairly new and could do a lot more work. Nevertheless, I was surprised to see it had some media exposure through SMH.

    I agree to an extent that the shortage people are claiming is really just an illusion. There have been quite a fair few of new articles reporting there is a critical shortage in rental apartments with claims of high number of applications bidding up prices and even offering of up to 12 months in advance rent payment. However, my observation conclude that all of these "rental shortage" news articles seem to concentrate in specific area where high demand are obvious due to the inherent attractiveness of the location. (i.e. near the CBD, universities, etc) Whereis, I rarely see reports claiming there is a large number of vacant homes that are still empty in the not-so-in-demand areas.

    This ultimately give the illusion that the "rental shortage" is dominant EVERYWHERE in Australia.

    I wonder why this is happening? Is it because people have unrealistic expectation on where they want to live? Is it because everyone demands to live in a "house" with a nice big backyard? Or is it the government aren't investing enough in infrastructure to make "distant" suburbs an attractive place to live? Or maybe the individual city councils are not allowing developers to build higher density residental apartments in high demand area because of some strange reasons?
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