Australia's fictional housing shortage

Every bubble has a myth, and shortage is a common one, but in Australia there was an actual number. But was it real number? Australia's fictional housing foundations

There was only one small problem: the purported shortage of 85,000 dwellings was complete fiction. In order to arrive at the shortage, the NHSC had to employ a methodology of the most dubious nature – a travesty of basic science. The shortfall of 85,000 dwellings was composed of the following: 1) 9000 to address homelessness of those sleeping rough; 2) 35,000 to address homelessness of those staying with friends and relatives; 3) 13,000 to house marginal residents of caravan parks; 4) 26,000 to increase the rental vacancy rate to 3 per cent, and; 5) An extra 2000 to round up to the nearest 5000!

The fourth category is an interesting one because it assumes that data sourced from the Real Estate Institute of Australia and its state-level affiliates are also based upon sound methodology. As I have covered elsewhere, the reported vacancy rates are likely to be severely biased downwards given the appalling methodology, data-gathering techniques, and lack of independent oversight (auditing). The last point is self-explanatory: who on earth rounds up to the nearest 5000?

Little more could be expected in the 2010 and 2011 reports. The NHSC performed a backflip, admitting that it was uncomfortable with its previous methodology given the obvious problems with it. It is unlikely that the NHSC would have changed course if not for the barrage of ridicule it experienced from those who read the report and were honest enough not to give their silent approval. Each report provided an increasingly dismal prognosis as the shortage had increased to 185,000 in 2011 and, if present circumstances remained the same, there is expected to be a shortage of 640,000 dwellings by 2030.

But nothing changed. The NHSC had to find another pretext for the pre-supposed shortage, this time by creating a category called “underlying demand”, driven primarily by immigration and other demographic factors. This would appear to be a more sound methodology if not for the fact that the numbers were simply made up again.

The problem with this argument is it can’t explain why prices started to rise in 1996 and have skyrocketed onwards, especially during 2001 to 2004. Annual population growth between 1996 and 2005 registered at approximately 1 per cent, but dwelling growth (adjusted for demolitions and discontinuations) was greater over this period. In fact, 2007 was the first time since 1950 that population growth was higher than dwelling growth. If the housing shortage argument was correct, housing prices should’ve started to rise from 2007 onwards, not 1996.

Going back to the point first made in the introduction, the 2011 Census revealed Australia had 7.8 million households, 900,000 lower than the NHSC’s figure, with population also growing by 300,000 less than previously estimated. These figures have come as such a shock that the NHSC chairman has reported that an undersupply could be incorrect. In fact, Morgan Stanley researchers have found that the current 228,000 dwelling undersupply has now become an oversupply of 341,000, a huge turnaround.