2010 State of Supply Report
Key findings
- Background
- Demand for housing is projected to grow further over the next 20 years
- Supply is also projected to grow (after the global financial crisis slowdown)
- The gap between demand and supply is likely to continue to grow
- Housing is still unaffordable for many households
- The ageing population will increase demand for different types of dwellings
- It is hard to develop 'infill' housing in the current housing market and planning framework
- Better planning and development assessment systems are needed, aligned with infrastructure delivery, to support housing supply and the growth of cities
- State of Supply Report: Future directions
The National Housing Supply Council's State of Supply Report 2010 found that:
- underlying demand grew by an estimated 205,900 households in 2008-09 (which was much higher than the Council projected in its first State of Supply Report)
- net additional housing supply grew by an estimated 127,100 occupied dwellings over the same period1
- the gap between demand and supply increased from 99,500 dwellings at June 2008 to 178,400 dwellings at June 2009
- although state and territory data on land supply indicate scope for an additional 176,000 dwellings a year in 2009-10 and 2010-11, recent experience suggests that fewer dwellings will actually be built
- the global financial crisis has had a significant effect on residential development in 2008-09, and will continue to impact on dwelling completions in the next few years
- the federal government's and state governments' responses, including major investment in social housing and the First Home Owners Boost, continue to mitigate some of this impact
- the medium projection of underlying demand is 3.2 million additional households in the twenty years to 2029
- this level of growth would require 160,000 net additional occupied dwellings a year (or gross production of over 180,000 dwellings a year)2
- ageing of the population is also affecting housing demand - households with residents aged over 65 years are projected to double from 1.6 million to 3.2 million households over the next two decades, indicating the increased demand for dwelling types better suited to the needs of older people
- increased housing supply (including within existing urban areas) would be assisted by reform of planning governance, clarity and consistency in the basis for developer charges, and mechanisms to ensure the implementation of urban strategic plans, including the delivery of infrastructure.
Background
The National Housing Supply Council (the Council) was established in 2008 by the Treasurer and the Minister for Housing to monitor housing demand, supply and affordability in Australia, and to highlight current and potential gaps between housing supply and demand from households. The inaugural State of Supply Report 2008, outlining the Council's demand and supply projections to 2028, was released in March 2009.
The Council has updated its projections of underlying demand, land and housing supply and the gap between them over 20 years from 2009 to 2029. The Council's 2010 report introduces a second part to the annual State of Supply Report to highlight topical housing market issues. The 2010 report focuses on the challenges of building infill housing, the efficiency of the housing market and the implications of the ageing of the population on the housing market.
Demand for housing is projected to grow further over the next 20 years
The Council's projections of growth in household numbers reflect growing demand over the next 20 years as the population increases to over 28 million.3
The Council estimates that there were 8.5 million households in Australia in June 2009, compared with an estimated 8.3 million households as at June 2008. By 2029, the number of households is projected to increase to 11.8 million (on a medium growth scenario).4
The medium projected increase of 3.2 million additional households by 2029 compares with the 2008 report's medium projection of 3.1 million additional households from 2008 to 2028. Table 1 also outlines projections for low and high growth scenarios.
Year |
Low growth scenario |
Medium growth scenario |
High growth scenario |
|---|---|---|---|
| 2011 | 268.0 | 315.5 | 355.1 |
| 2014 | 677.2 | 798.2 | 899.1 |
| 2019 | 1,361.6 | 1,610.8 | 1,818.3 |
| 2024 | 2,039.6 | 2,423.2 | 2,742.9 |
| 2029 | 2,705.6 | 3,229.8 | 3,666.6 |
Source: National Housing Supply Council projections based on McDonald-Temple low, medium and high household growth scenarios, for the 20 year period from June 2009.
Around two-thirds of the additional demand over the next 20 years is projected to be in and around four of the major cities: Melbourne (19 per cent), Sydney (16 per cent), Perth (10 per cent), and Brisbane and surrounding areas in south-east Queensland (21 per cent).
The demand for separate houses is projected to grow proportionately less quickly than demand for medium and higher density dwellings.
Supply is also projected to grow (after the global financial crisis slowdown)
The stock of private dwellings in Australia is estimated to be 9,009,000 dwellings at June 2009, a figure that incorporates revised data for demolitions for the years 2007 to 2009.
|
Number of dwellings |
|
|---|---|---|
| 1 | 2006 ABS Population Census occupied private dwellings and unoccupied dwellings adjusted for undercounting | 8,605,800 |
| plus | + | |
| 2 | ABS dwelling completion data for 2007, 2008 and 2009 | 438,100 |
| minus | - | |
| 3 | Estimated stock losses in 2007, 2008 and 2009 due to demolition | 34,900 |
| equals | = | |
| Total supply in 2009 (rounded to nearest '00) | 9,009,000 | |
Source: Adapted from Australian Bureau of Statistics, Census of Population and Housing - Details of Undercount, cat. no. 2940.0, ABS, Canberra, 2007; ABS, Building Activity, Australia, June 2009, cat. no. 8752.0, ABS, Canberra, 2009; National Housing Supply Council estimates.
The Council has projected growth in supply from 2009 to 2029 for three possible supply scenarios (based on trend in growth of aggregate housing supply as measured by Australian Bureau of Statistics data on completions since 1980).
|
Low supply scenario |
Medium supply scenario |
High supply scenario |
|---|---|---|---|
| NSW | 452.1 | 659.3 | 881.2 |
| Vic. | 541.7 | 833.7 | 1,101.6 |
| Qld. | 520.9 | 804.3 | 1,168.1 |
| SA | 83.4 | 149.5 | 209.7 |
| WA | 298.3 | 409.3 | 601.5 |
| Tas. | 15.2 | 30.2 | 43.3 |
| NT | 5.4 | 11.5 | 19.1 |
| ACT | 24.4 | 42.4 | 71.8 |
| Australia | 2,940.1 |
Note: Figures are rounded to the nearest '00. Projections by state and territory are based on the lowest, average and highest trend data (from 1 July 1980 to 30 June 2009) for each individual state and territory. The sum of these state and territory figures would not be expected to add to the low, medium and high data for Australia as a whole.
Sources: Australian Bureau of Statistics, Building Activity, Australia September 2009, cat. no. 8762.0, ABS, Canberra, 2009; and National Housing Supply Council estimates for completions net of demolitions.
Information provided by the states and territories on land for greenfield and infill development indicates scope for up to 176,000 additional dwellings (gross) a year for 2009-10 and 2010-11 for Australia as a whole. The Council believes that full realisation of these 'potential dwellings' is highly unlikely because:
- imminent greenfield release - and dwelling yields per hectare - have generally been less than expected due to staggered lot releases by current owners and other sources of attrition
- infill development is difficult to predict, especially in the present financial environment
- major projects may be delayed considerably - and have yields reduced - by public consultations and development assessment processes.
States and territories have also indicated that, on average across Australia, over two-thirds of dwelling growth in capital cities between 2009-10 and 2018-19 is expected to be through infill development. While nearly all infill activity is likely to be medium and high density, only 30 per cent of all dwelling completions in recent years have been flats, apartments or townhouses. Moreover, access to finance and limited investor interest seem likely to constrain multi-unit development for a while yet.
The Council stresses that land supply projections beyond two years are highly speculative, given the uncertainty that potential dwellings will be built. Economic, environmental and development-related factors are also likely to impact on the pattern and rate of growth in housing stock.
Preliminary data on the residential construction industry suggest that a labour shortage is looming, especially as skilled tradespeople retire in greater numbers than the industry is able to replace with new migrants or apprentices. The Council will explore this issue further in its next report.
The gap between demand and supply is likely to continue to grow
The gap between total underlying demand and total supply is estimated to have increased by approximately 78,800 dwellings in the year to June 2009, to a cumulative shortfall of 178,400 dwellings.
Estimated gap as at June 2008, revised (a) |
99,500 |
||
|---|---|---|---|
| Growth in estimated gap between 2008 and June 2009: | |||
| plus | Increase in underlying demand in year to June 2009 | + 205,900 | |
| minus | Increase in adjusted net supply (b) in year to June 2009 | - 127,100 | |
| equals | = 78,800 | + 78,800 | |
| Estimated gap as at June 2009 | 178,400 | ||
Notes: (a) The gap estimate of 85,000 for June 2008 in the 2008 report has been revised (to reflect an updated methodology) to 99,500. (b) Adjusted net supply is gross additional supply less estimated demolitions, with resulting net production discounted by 5.9 per cent to account for dwellings unavailable to meet underlying demand (see below).
Sources: National Housing Supply Council estimates.
The gap at June 2009 has increased by more than the Council's projection of 23,000 in the 2008 report. The increase is mostly the result of a larger estimated increase in the number of households in 2008-09, 205,900 households, compared with the Council's projected increase of 152,000 households under its medium growth scenario. The supply projections used to calculate the gap incorporate revised estimates of demolitions.
A portion of future supply is likely to continue to be for holiday and second homes or be vacant for a variety of reasons. The projections of the gap between demand and supply assume that 5.9 per cent of the net increase in stock will not be available to meet the growth in underlying demand.
The global financial crisis has had a significant effect on residential development in 2008-09, and will continue to impact on dwelling completions in the next few years. The impact of the Australian and state governments' responses, including major investment in social housing and the First Home Owners Boost, has been difficult to assess in the short term, especially because the supply effects will be extended over time. Although residential approvals showed signs of recovery in the latter part of 2009, a sustained recovery requires improved confidence among investors and developers, and improved access to development finance, especially in the multi-unit sector.
The Council has also updated its longer term projections of the gap, as shown in Table 5. An average of over 180,000 new dwellings (gross) would be required each year in the 20 years to 2029, to accommodate the medium trend projected average increase in underlying demand of 160,000 additional households a year, taking into account demolitions and vacant dwellings.
The long-term projected gap may not come about if the market responds to changes in demand by increasing supply. However, the Council has identified a range of constraints in the market that may limit the responsiveness of supply. Even if the market responds to excess demand by increasing supply over time, it is unlikely to provide sufficient housing for people whose incomes are towards the bottom of the household income distribution and who, in practice, would bear the burden of a major gap between underlying demand and supply. Therefore, a substantial part of the response to this gap needs to lie with government policy.
|
Additional annual underlying demand & supply |
|
|
|
|---|---|---|---|---|
Year ended |
Medium household growth |
Adjusted net medium supply growth |
Annual growth in gap between |
Cumulative gap |
Number of dwellings | ||||
| 2009 | .. | .. | .. | 178,400 |
| 2010 | 156,500 | 132,500 | 24,000 | 202,400 |
| 2011 | 159,000 | 133,100 | 25,900 | 228,300 |
| 2012 | 160,300 | 133,700 | 26,500 | 254,800 |
| 2013 | 161,200 | 134,300 | 26,800 | 281,600 |
| 2014 | 161,300 | 135,000 | 26,300 | 308,000 |
| 2019 | 163,000 | 138,100 | 24,900 | 436,300 |
| 2024 | 163,300 | 141,200 | 22,100 | 549,100 |
| 2029 | 157,700 | 144,300 | 13,400 | 640,600 |
Note: (a) Adjusted net medium supply growth is additional supply less estimated demolitions, with resulting net production discounted by 5.9 per cent to account for dwellings unavailable to meet underlying demand.
Source: National Housing Supply Council projections based on McDonald-Temple medium household growth scenario; National Housing Supply Council projections based on trends in dwelling completions; see Appendices 2 and 3 of the 2010 report for full details.
The 2010 report also includes projections of the gap for low and high supply and underlying demand scenarios.
The Australian Government is implementing policies and program responses to address homelessness and increase construction of both new social housing dwellings and subsidised private rental accommodation. These actions will take time to be fully effective and will require significant additional capital and recurrent expenditure to address the full extent of the deficit at the lower end of the housing market. The Council has concluded that the share of social and affordable housing will fall without continued investment.
Alternative mechanisms for financing social and affordable housing, including through the development of the community housing sector, will need to continue to meet demand from low-income households.
Housing is still unaffordable for many households
While housing affordability for first home buyers and private renters declined over the decade to 2008, the global financial crisis and lowering of interest rates have subsequently meant short-term improvements in affordability for mortgagees.
In 2007-08, there were over 300,000 lower income home buyers paying more than 30 per cent of their gross income in mortgage repayments (a common definition of 'housing stress'). Around 160,000 of these households were paying more than half of their income in repayments. Many of these mortgagees would have experienced a lowering of repayments during and after the global financial crisis because of lower interest rates.
Renters, however, have not benefited directly from this lowering of interest rates. In 2007-08, some 445,000 lower income households renting privately were in 'housing stress'; around 170,000 paid more than half their gross household income in rent.
These affordability outcomes are the direct result of the ways in which housing supply shortages play out in the market. In 2007-08, there were 814,000 lower income private renters for whom the rents charged for some or all of 1.4 million private rental dwellings were nominally affordable (i.e. not more than 30 per cent of a household's gross income). However, over three-quarters of these rental dwellings were in fact occupied by households in higher income groups, leaving a shortfall of almost 500,000 dwellings that were both affordable and available for those in the bottom 40 per cent of the income distribution.
The strong demand for housing resulting from population growth, coupled with falls in residential construction in many submarkets, is also likely to lead to tighter rental markets across the country.
The ageing population will increase demand for different types of dwellings
Ageing of the population will have significant impacts on the housing sector, as the proportion of older households (those with the reference person5 aged 65 or over) is projected to grow from 19 per cent to 28 per cent of all households over the next 20 years. This represents an increase from 1.6 million to 3.2 million households.
Owner occupation will remain the preferred type of tenure and probably most older people will remain in their detached homes for as long as they can. However, projections of underlying demand indicate that there will be pressures on both private and public rental markets to meet the needs of older renter households. Underlying demand for private rental among older households is projected to rise from 146,200 to 321,400, while public rental demand is projected to rise from 86,500 to 189,800. The Council's projections are based solely on the current housing patterns of older households, without taking into account how the preferences and choices of future generations of older households may differ from those of existing older households.
As lone-person and couple-only older households grow in numbers, they may increasingly seek smaller dwellings. Additional housing will be needed to support independent living as people age, and existing homes will often need to be retrofitted. Other challenges remain to ensure that there are sufficient options for older households to age in their own home or in alternative appropriate accommodation, such as retirement villages.
It is hard to develop 'infill' housing in the current housing market and planning framework
Metropolitan plans for our major cities include targets for the proportion of new housing to be provided through infill development of between 50 per cent and 70 per cent. The Council's demand projections indicate increasing demand for attached and medium-density housing over the next 20 years. The Council has explored the likely increase in supply over the next 10 years from infill development as well as from greenfield development.
The Council has noted the barriers to infill development and difficulties that planners and developers face in adding to housing supply in this way. In particular, housing is generally more expensive to build in infill developments than in greenfield ones. For example, in all major Australian cities except Sydney, it costs more to build a two-bedroom unit in an infill development than a comparable three-bedroom house with backyard in a greenfield development.6 Planning approval and development assessment processes generally add time, uncertainty and costs to the development process regardless of location; there are particular challenges in many infill locations. These uncertainties and delays compound the higher construction and raw land costs that make it generally more expensive and commercially risky to build infill than greenfield dwellings.
Community opposition is often a significant barrier to infill and medium-density development. The options for governments to make up the gap are to increase greenfield land release, increase residential densities on the fringe or take substantial steps to facilitate infill development. It is also important to consider measures to retain, if not increase, affordable rental in infill areas.
Better planning and development assessment systems are needed, aligned with infrastructure delivery, to support housing supply and the growth of cities
The Council's work indicates that demand will continue to increase as the population grows, that supply shortages will put pressure on prices, and that low-income renters will be particularly adversely affected. The Government's significant investment in social and affordable housing will improve the situation for some low-income households. However, the challenges of demand pressures and poor housing affordability are likely to remain unless there is significant supply-side reform.
The planning system is critical for delivering an adequate supply of land and dwellings to meet future demand. Its importance to improving housing affordability and the vibrancy of cities was noted last year by the Prime Minister.7
The Council welcomes the Council of Australian Governments' (COAG) agreement to a set of national criteria for capital city plans to ensure sustainable, liveable cities with affordable housing, as well as COAG's broader housing supply and affordability reform agenda.
State and territory governments already have a variety of initiatives under way to streamline development assessment processes and improve the certainty of planning systems. However, greater clarity about the basis for developer charges and reform of planning governance would support COAG's objectives for capital cities, as well as remove barriers to new housing supply.
In particular, clarity about the roles and responsibilities of the different levels of government in the planning system is needed. The way cities are planned and infrastructure is delivered could be improved by considering metropolitan or regional governance of planning and related implementation processes.
The Council is keen to see planning reform encompass greater strategic direction and more as-of-right development and code-based assessment. This should be balanced by measures to ensure public engagement at a strategic level. Such reform, as well as further development assessment reform (such as greater use of development assessment panels to approve major projects), should make the housing market more responsive to changes in demand.
Closer integration of planning systems with the delivery of infrastructure is needed to support residential development. The financing of this infrastructure is an important issue, as is effective planning of the type of infrastructure needed, its quality and the timing of its rollout.
State of Supply Report: Future directions
In the past year, the Council has:
- worked with state and territory planning officials to refine data on housing supply in infill and greenfield development
- explored the costs of producing infill and greenfield housing (see Chapter 6 of the 2010 report)
- analysed the vacant dwelling stock (see Chapter 3 of the 2010 report)
- undertaken some preliminary analysis of the submarkets for older households and first home buyers (see chapters 2, 4 and 8 of the 2010 report)
- refined the set of indicators, added an indicator on the efficiency of the housing market and explored possible indicators of greenfield supply.
In 2010 and 2011, the Council will work on:
- the challenges in meeting additional demand through infill and greenfield housing, including the relative merits of these different forms of development in terms of affordability and sustainability
- more detailed analysis of the cost of producing housing, including land development and infrastructure
- exploring the supply-side of the housing market further, including the characteristics of the social housing sector, non-private dwellings, the private rental sector and companies involved in land development and housing construction
- greater understanding of some key drivers of underlying demand, including the settlement patterns of migrants, changes in household size and changing housing preferences
- more fine-grained assessment of the relationship between demand and supply in certain submarkets, including to assess the extent to which increasing prices are excluding moderate income households from owner occupancy.
The Council's State of Supply Report 2010 as well as supporting data and the 2008 report can be downloaded at the National Housing Supply Council website.
1. The Council's medium trend supply projection in the 2008 report was 129,000 net additional dwellings for 2008-09 (comprising projected gross production of 154,000 dwellings less an estimated 25,000 dwelling demolitions). Dwelling supply actually increased by 134,800 dwellings in 2008-09 (146,500 total completions minus an estimated 11,700 demolitions), which, when further adjusted to take account of dwellings likely to be vacant at any one time, left 127,100 dwellings available to meet increased underlying demand.
2. The difference between these two figures is explained by demolitions and vacant dwellings.
3. This compares with the Intergenerational Report 2010's estimates of 29.2 million by 2030 (The Treasury, Australia to 2050: future challenges, Commonwealth of Australia, Canberra, 2010).
4. National Housing Supply Council estimates are based on projections of household formation commissioned from Professor Peter McDonald and Dr Jeromey Temple of the Australian Demographic and Social Research Institute, the Australian National University. More detail is provided in Chapter 2 of the Council's 2010 report. The numbers in this summary of the key findings are based on the medium growth scenario. The medium growth scenario is based on (among other parameters) net overseas migration of 180,000 persons a year. The low growth scenario assumes net overseas migration of 120,000 persons a year, and the high growth scenario assumes 230,000 persons a year.
5. 'Household reference person' is the term used by the Australian Bureau of Statistics to mean the household member whose relationship with all other members of the household identifies the composition of the household in a way that is relevant to family formation. Australian Bureau of Statistics, Family, Household and Income Unit Variables, cat. no. 1286.0, ABS, Canberra, 2005.
6. URBIS, National Dwelling Costs Study Report, prepared for the National Housing Supply Council, January 2010 (forthcoming).
7. Address to the Business Council of Australia, Building a big Australia: Future planning needs of our major cities, 27 October 2009.