Housing Supply - Over, not undersupplied!

Article below by Michael Matusik, extracted from the Matusik Snapshot 442, June 2010.

I keep on reading about how undersupplied the market is, yet all the evidence at the coalface suggests otherwise. Even when the new stock for sale is affordable, or better still offers value for money, buyer interest is weak. How could this be? Aren't we so undersupplied with new housing that it is bordering on a national crisis?

A step back from the hype, industry hyperbole and vested interest groups, suggests otherwise. In fact, and as noted in Snapshot 428 late last year, the residential market is heading into oversupply. Yes, oversupply. And as Australia's population ages, more spare capacity will be released onto the market. New supply could even be seriously overdone if overseas migration figures fall to the extent that some are now predicting.

From mid-2005, stronger net overseas migration created a divergence between total population growth and new housing starts. This has been highlighted by almost every property spruiker in the land. But much of the net overseas migration -and up to 60% in some states -doesn't add to new housing demand. The new arrivals are either tertiary students, business people on temporary work visas, or those who fit into the family reunion category.

As a result of more overseas migrants in the population mix, the average household size is increasing across Australia -and especially in Queensland, where the recent increase in overseas numbers has had a greater impact. New migrants live with, on average, one more person per household than older Australian households. The recent increase in household size reflects current demographic trends rather than housing stress.

When modelling the change in household size against population growth, new housing demand is not as strong as most think, especially when you factor in the real impact of new overseas migration. Our modelling suggests that the market is already oversupplied.

Again, as noted in previous Snapshots, we have been over-consuming in housing for some time. As noted in Snapshot 370, there are 830,000 unoccupied residential dwellings across Australia, and the latest advertised dwellings for rent from RPData suggest that the vacancy rate is well over 3%. It is a pity that such data is not analysed properly on release.

In short, the residential market is not undersupplied. Demand is also weak. "Building it," alone, will not ensure success. Too many new dwellings do not offer value for money. Disbelieve anyone whose sales pitch is now largely based around how much the market is undersupplied.

Copyright Michael Matusik, 2010

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