As we all know, there has been a persistent imbalance between our strong population growth and the slow rate at which new housing stock is being delivered to the market. This has been the primary cause for the strong capital growth in our property prices over many decades. It’s all about supply and demand. When too many people are chasing a limited number of houses, prices rise. The evidence is undeniable that population growth is such a strong contributor to our economic growth as a country and capital growth of our properties.
On average, our population is growing by about 350,000 people per year. Much of this has come about because of international migration. We have also had a bit of a surge in organic population growth. All of this has contributed to property price growth as there is more competition for the limited amount of housing being filtered through.
In more recent years, State Governments have responded by facilitating growth in new housing supply through making some progress in increasing the availability of land for housing and also facilitating the construction of higher density dwellings in metropolitan areas. But that is all going too slow.
These measures, combined with favourable interest rate settings, culminated in a record build of 233,544 new dwelling commencements in 2016. This level exceeded the previous one set in 1994 by 25% and is also 37% higher than the average build of this century of 175,000 dwellings per year.
For just the first time since 2003, the number of homes built in Australia has come close to fulfilling the needs of Australia’s growing population. However, if the population continues to grow at the current rate, and economic growth hovers around the current modest rates, Australia will need to increase the number of homes it builds each year by 20% from 2018 all the way through until 2050 to avoid compounding the existing affordability challenges.
We should also note that if Australia’s household income growth returns to a rate above its long-term average this would generate further housing demand. If this does happen, then Australia will need to build in excess of 250,000 homes each year on average simply to ensure that the current affordability challenge is not amplified.
Bear in mind that Australia has only built 175,000 dwellings per year on average over the past 17 years so that is quite some challenge.
Clearly, all three levels of Government, being Local, State and Federal, need to come together for some combined policy to improve the delivery of residential land and speed up the approval process for new homes….but will they?
I guess all the above certainly does give confidence to those investing in real estate that real estate prices are unlikely to see any downward pressure because the fundamentals just don’t support it. The only way is up. The underlining trend is hugely and significantly supportive of real estate prices for decades to come.
But where will the biggest upcoming capital gains be found? We spend many hours every day finding the answer to that question – and have done so for 36 years.