AHURI NEWS

Rising house prices increase supply, slowly

Australian housing supply responsiveness is slow and concentrated in more expensive dwellings

1 June 2017

New research from AHURI reveals that every 1 per cent increase in Australian housing prices only produces a 4.7 per cent increase in new house approvals for the next year and a half, resulting in a very small addition to the total stock of houses of between 0.05 per cent and 0.09 per cent; that is, for every 10,000 existing houses, between five and nine new houses will be built.

The research, ‘Housing supply responsiveness in Australia: distribution, drivers and institutional settings’, undertaken by researchers from Curtin University, RMIT University and the University of Sydney, investigated the effects of various factors on the supply of new houses, including existing house prices, topographical constraints, climate, existing land uses and planning regulations. Local area effects such as metropolitan versus regional areas, high and low priced housing areas, areas of low versus high population growth and areas with high or low job opportunities were also studied for their impact on new housing supply.

While growth in the overall national housing stock kept pace with population growth over the decade 2005–06 to 2013–14, there were differences between cities and within cities. In Perth, Brisbane and Sydney, increases in the housing stock were not enough to match the increase in these state capitals’ populations, while in the other capital cities, housing stocks expanded at a rate greater than population increase.

We found that less than 5 per cent of approvals for building new housing were in the bottom 20 per cent of house and unit prices in both 2005–06 and 2013–14. Government intervention may be required to ensure an adequate supply of affordable housing for low-income households into the future.

Within cities, the growth rate of housing stock was greatest in outer metropolitan rings at nearly 20 per cent, compared to just 11 per cent in inner metropolitan rings. On the other hand, growth in apartments and units was higher in the inner ring (28%) declining gradually further from the CBD and falling to 24 per cent in the outer ring. When units and houses are combined, growth in all housing stock was relatively weak in the middle ring suburbs of Australia’s cities and was strongest in the outer suburbs.

However even when new builds kept pace with population increase, the new dwellings were not readily affordable for lower income households. The research reveals that house and unit approvals were concentrated in the mid-to-high price market segments and largely absent from the lowest priced segments. Almost 80 per cent of house approvals in 2013–14 were in the mid-6th to high-9th deciles (i.e. the measure of the distribution of house prices), a range covering houses prices of between $306,000 and $795,000. There was little change in this supply pattern between 2005–06 and 2013–14.

Associate Professor Rachel Ong ViforJ from Curtin University, one of the research’s authors, says ‘We found that less than 5 per cent of approvals for building new housing were in the bottom 20 per cent of house and unit prices in both 2005–06 and 2013–14. Government intervention may be required to ensure an adequate supply of affordable housing for low-income households into the future.’

The research report is available to download from the AHURI website.