Australia's Housing Shortage Lie

Revealed: The Housing Shortage Lie

by Kris Sayce on August 24, 2009

EXCERPTS:

[Is there] any authentic research to support the claim made by property spruikers that Australia suffers from a ‘chronic housing shortage.’

...After all, it is the main basis the property bulls make to support the idea of continually rising property prices.

They further argue the shortage is magnified due to immigration and natural population growth, so that there are not enough houses being built to accommodate everyone.

That should make you think that data supporting the argument is easily available.

Well, you’re right. It is easily available.

However, we can only think that no-one has ever read it.

Because if they have, they could not possibly conclude that there is a ‘chronic’ housing shortage.

The numbers which represent the entire basis for the ‘chronic’ housing shortage just don’t add up.

... as soon as government runs out of ways to manipulate the housing market, prices will collapse.

....

For years we’ve heard the argument about demand being far in excess of supply.

We’ve lost count the number of times the likes of Christopher Joye, Rory Robertson and the Housing Industry Association (HIA) have told us about the shortage and how this is the reason why property prices cannot fall.

But the one thing that always struck us was the lack of referenced evidence. We’ve hardly ever read one of these ‘experts’ point towards ironclad proof.

Sure, plenty of times we’ve read vague numbers being thrown around. As if merely saying there’s a shortage and then applying a number to it is somehow proof enough.

....

 ...the link to the research that is the basis for the ‘chronic’ housing shortage argument.

Here’s the link to the report.

It’s 193 pages long, so you may want to brew a cup of tea and tell your receptionist to hold all calls for a few hours.

But even before you get out of the Executive Summary on page xiv you’re hit with a giveaway to how unreliable the data in the report is:

“The Council stresses that projections beyond two years are speculative…”

Two pages later:

“The Council estimates that a minimum of around 85,000 dwellings is the gap (unmet need) in the supply of housing in 2008… The Council acknowledges the crudeness of this estimate and also points out that there were some 830,000 vacant dwellings in Australia at the time of the 2006 Census.”

There’s the source of the 85,000 shortage. I’ve actually removed a sentence that followed because I want to highlight it separately.

But before I do, remember, this report is the basis for every single argument made by property spruikers.

So, how have they come to the conclusion that there was a shortage of 85,000 dwellings in Australia in 2008?

This is the part that left me speechless…

“The Council estimates that a minimum of around 85,000 dwellings is the gap (unmet need) in the supply of housing in 2008. This is based on the incidence of homelessness and the low level of vacancy rates in the private rental market.“

The underlining is my emphasis.

There you have it. The housing market will always rise because of the ‘chronic’ housing shortage, a ‘chronic’ housing shortage being measured by the number of homeless people.

We’ve no doubt that Dr. Merv would tell us not to try and reason with fools, but we’ll go through the motions anyway.

Before I do, let me give you the full rundown of the 85,000 shortage.

According to the report, the dwelling gap, which is the difference between the demand for housing and the supply is made up of:

Dwellings required to address homelessness – sleeping rough = 9,000

Dwellings required to address homelessness – staying with friends and relatives = 35,000

Dwellings required to house marginal residents of caravan parks = 13,000

Dwellings required to increase rental vacancy rate to 3% = 26,000

Now, the human calculators out there may think, “Hang on, that’s only 83,000.”

You’d be right. But in true statistician fashion, they are only capable of dealing in numbers rounded to the nearest 5,000…

Hence, there was a housing shortage of 85,000 homes in Australia in 2008.

But the report doesn’t stop there. Not content with providing a suspect set of numbers for 2008, the report goes on to outline the shortage for future years.

So, based on the 85,000 starting number for 2008, this has been extrapolated to 108,000 for 2009, all the way up to 431,000 for 2028.

We’re not surprised the property spruikers have never mentioned the numbers behind the gap. If they did they’d be laughed out of town.

To argue that a housing gap and therefore ever-rising property prices can be based on the number of homeless people is utter nonsense. We don’t think we’ve ever come across such statistical foolishness.

....

And furthermore for the researchers to claim that the lower rental vacancy rate implies a shortage of housing is also statistical smoke and mirrors. Perhaps we could make the target vacancy rate 4% and argue there is an even bigger ‘chronic’ shortage in housing.

The facts are, as we suspected all along, the case for a housing shortage in non-existent. It does not exist. There is no housing shortage.

That’s because it is price that is the major problem in the housing market. Prices are at unsustainable levels brought about by the manipulation of demand and supply by the various levels of government.

As soon as the manipulation ends, price discovery will lead to a collapse in the housing market.

Only then will the property spruikers realize there is not, and never has been a ‘chronic’ housing shortage.