Death of the Housing Shortage

“And like that… he’s gone.”

That was Kevin Spacey’s line at the end of The Usual Suspects.

Yesterday’s vote in the Victoria State Parliament just eliminated the whole argument for a housing shortage. And so to paraphrase Mr. Spacey, “And like that… it’s gone.”

Not that there ever was a housing shortage. But thanks to the new law, the land area of metropolitan Melbourne will increase by 5%.

Doesn’t sound much does it?

Only it is. It’s a lot. And over half of the area will be available for new housing. It’s an extra 24,500 hectares which The Age compares to four times the size of Phillip Island.

Or to put it another way, it’s 30 times the size of the Melbourne suburb of Brighton.

But even more importantly, according to The Age, “The expansion is to accommodate an additional 134,000 homes for Melbourne and provide 20 years of land supply for new housing.”

Well that should do it then.

According to our pals at the National Housing Supply Council, Victoria has an underlying demand of 52,300 homes.

This morning the property spruikers won’t know whether to laugh or cry. We’ll suspect they’ll be crying. Seeing as there isn’t a housing shortage they’ll now have an extra 134,000 house and land packages to flog.

That’s on top of the nearly 40% of homes that go unsold at auctions in Melbourne each weekend.

So thanks to the Victorian government, the non-existent chronic housing shortage has just become even more non-existent, if that’s possible. And if it was alive then it’s just been dealt a death blow.

More than double – and nearly triple – the number of homes that are supposedly in demand in Victoria.

Even better than that, the 134,000 homes helps meet the so-called underlying demand from other cities too. For instance, according to the National Housing Supply Council, New South Wales has an underlying demand of 54,200 homes, and Western Australia – we’re told – has a demand for 30,100 new homes.

And it can only be a matter of time before the pasture land in Melbourne’s south east is swallowed up by housing estates:

As the map above from The Age shows, there’s a massive wedge of land east of the southern bayside suburbs that’s ripe for development. We’ve circled the area on the map.

We drive along the Frankston freeway every day. On one side there’s housing estates, on the other there’s green fields… not for long is our guess. Take a trip on Eastlink and you’ll see even more green fields, all the way from Frankston to Dandenong.

That’s thousands more homes ripe for the building.

And all within a commutable distance of the Melbourne CBD and areas to the east and south.

But oh dear, what’s this: “End of the boom? Housing industry showing sign of nerves“.

According to another article in The Age:

“THE era of surging growth in house prices appears to be over with expectations flattening and builders warning of a hiring freeze amid slowing development activity.”

You can see why the Victorian government’s move is perfect timing. Right at the top of the market it’s making available 134,000 blocks of land for house building.

At least the builders will be glad of the extra work. Even though they’ll have to cut their margins to the bone in order to be competitive.

But it’s not just the spruikers who’ll be happy, the banks will be too. ANZ Bank must be cock-a-hoop this morning that their campaign for an increase in housing supply has paid off.

In a June publication for its Economics & Markets Research report the ANZ states:

“Top-down analysis reveals the Victorian housing market is fundamentally under-supplied by around 47,000 dwellings.”

Not anymore! But it goes on. Clearly frustrated:

“Nothing in the foreseeable future is likely to shift this pent-up demand substantially. Even a solid recovery in completions in the years ahead will only chip away at the shortage.”

Cheer up guys, haven’t you seen the good news – 134,000 homes.

Forget about chipping away at the shortage, this has strapped a tonne of Semtex to it and blown the shortage to smitherines.

In one swoop the housing shortage for three states has been wiped out by Victoria.

What does the inscription on the Statue of Liberty say? That’s right:

“Give me your tired, your poor,
Your huddled masses yearning to breathe free,
The wretched refuse of your teeming shore,
Send these, the homeless, tempest-tossed to me.
I lift my lamp beside the golden door.”

OK, we don’t have a lamp, or a golden door, but I’m sure we could leave the porch light on to help guide the way.

Huddled masses, to Victoria ye shall come.

Can’t afford a home in Sydney or Perth? Then to the Melbourne suburbs with you. To Sunbury, to Melton, to Cranbourne and Pakenham.

“Oh, no-one will want to live there”, shriek the toffs of South Yarra, Richmond and Middle Park. Oh yeah? Check out the maps, people already do. And funnily enough about 95% of the Melbourne population lives outside the inner city.

We can’t wait to tell the spruikers the good news. One thing’s for certain, they’ll be speechless. Delighted that their long campaign has finally come to pass.

Similarly the National Housing Supply Council will be doing cartwheels too. We haven’t given much airtime to their second report released a couple of months back.

In the first report, which you’ll recall we ridiculed for blaming the housing shortage on the homeless and caravan dwellers, they put the shortage at 85,000 homes. Well, now it’s increased to over 200,000 homes.

But we’ll give them some credit for taking on board our criticisms. We’ll have to assume it’s our criticisms they’ve listened to because no-one in the mainstream press has dared say anything to argue against the housing shortage nonsense.

The second report from the National Housing Supply Council states:

“Members of the Council and some stakeholders were uncomfortable with the composite proxy measure of current undersupply used in the 2008 report. The measure used in the 2008 report has a number of drawbacks, including:

• data on homelessness and marginal residents of caravan parks are updated only once every five years
• data on rental vacancy rates are volatile and relate to capital cities only
• in theory, an interaction between the extent of homelessness and scarcity of rental dwellings, could result in some over estimation of the gap
• a host of factors influence homelessness in addition to the availability and cost of housing, including mental health, family violence and breakdown, and substance abuse
• the extent of homelessness is likely to be a conservative proxy for the gap between underlying demand and housing supply, which may manifest in a variety of different ways, such as increased house prices relative to incomes, delays in family formation, increased household size, and growth in the number of ‘group households’.”

We’re particularly pleased by dot point three which addresses our claim about homelessness being an insulting way to measure a non-existent housing shortage, and the bizarre claim that a lower rental vacancy rate indicates a housing shortage.

We countered that argument by simply pointing out a comparison. If a supermarket normally has 20 cartons of milk left over at the end of the day, but today they only have 15 cartons left over, no-one in their right mind would claim there is a shortage of milk.

But that’s one of the methods the spruikers use to claim there’s a rental shortage. They claim that because the rental vacancy rate is at say 2.5% rather than 3% then there is a shortage of houses by the amount needed to take the rate back up to 3%.

Rubbish.

And we’re also pleased by dot point four which at least admits homelessness is not caused by the price of a four bedroom home in Caulfield being too expensive.

Homelessness is usually caused by the issues they list above. Any psychologist or social worker will tell you that.

But look, let’s be serious, the decision to allocate all this extra land to housing is just another example of government’s believing their own spin. Believing in their own ability to manipulate markets for their own benefit.

The Victorian government has bought into the idea of a housing shortage. Sorry, a chronic housing shortage.

And for what seems like years the property spruikers have been calling for the government to make more land available. Not because they really believed there was a shortage but because it fits in nicely with their reason for Australia not having a housing bubble.

Well, now they’ve got what they asked for. And not surprisingly, the silence is, well, very quiet. So far we haven’t heard a peep from them.

Doubtless an emergency meeting of Spruikers Anonymous has been called and the next excuse will be put through its paces.

But with auction clearance rates slipping, house prices plateeeeeeeaaaau-ing, and a huge swathe of new land just waiting for the builders to move in, that good old housing bubble is now looking more unstable than it’s ever looked before.

Oh, and by the way, according to the ABC, “Australian house prices have fallen for the first time in 17 months, as rising interest rates, and the end of government stimulus payments crimp demand.”

You’ll be able to check out the full details from RPData when the press release is posted on its website.

What’s that noise? We can hear the sound of something deflating. I wonder what it is…

Cheers.
Kris Sayce
For Money Morning Australia

Tagged as: demand, home, housing, shortage, supply