Media Release

Housing supply not matching population growth in some capital cities

New housing supply failing to trickle down to lower value market segments. Supply-side barriers more acute in Sydney.
ContactsRachel Ong ViforJ, Deputy Director
Published18 May 2017

New research from the Australian Housing and Urban Research Institute (AHURI) and the Bankwest Curtin Economics Centre (BCEC), reveals that increases in housing stock in Sydney and Perth have failed to match population growth in these capitals.

Housing supply responsiveness in Australia: distribution, drivers and institutional settings, led by Professor Rachel Ong, Deputy Director of BCEC, examines closely how well supply is keeping up with demand across Australia’s regions and capital cities.

Professor Ong said while national growth in Australia’s housing stock has kept pace with population growth over the last ten years, the picture is very different for some of our major capitals.

“Increases in Perth and Sydney’s housing stock over the past ten years have been insufficient to match the increase in their growing populations, with supply-side barriers more acute in Sydney than Perth,” Professor Ong said.

The report also finds that the issue of housing affordability is more nuanced than previously thought, with most new housing in the nation concentrated in mid-to-high price market segments.

“We’d normally expect to see a trickle-down effect, where building higher-value homes leads to the opening up of lower-value homes for those on lower incomes. Our research indicates this isn’t the case, meaning an increase in housing supply is not leading to better housing affordability,” Professor Ong said.

“This indicates that a broader policy response is needed to address the structural impediments that weaken the ‘trickle down’ impact on new housing supply. There is a real need for targeted government intervention, including measures that improve financial incentives for developers to build at the lower end of the housing market.”

A positive finding from the report is that the supply of units is more likely to be concentrated in job-rich areas, with more than 50 per cent of new units built in the highest job density areas in Australia.

“A likely result of that will be shorter commuting time to work, which offers an important boost to productivity,” Professor Ong said.

Key findings of the report include:

  •  An increase in the level of real housing prices by 1 per cent produces an estimated 4.7 per cent increase in new housing supply. Units with a 1 per cent price increase yields a 3.9 per cent increase in supply.
  • This level of price responsiveness translates into a very small increase in the total number of houses and units within Australia, which does little to keep up with demand pressures.
  • Growth in the national housing stock has kept pace with national population growth over a nearly decade-long timeframe, but differences exist across capital cities.
  • In Perth and Sydney, increases in the housing stock are insufficient to match the increase in these state capitals’ populations.
  • In Perth, population growth was exceptionally strong, contributing to intense demand pressures.
  • Despite a relatively lower increase in its population, Sydney’s housing stock growth has failed to match population growth. It would seem that supply-side barriers are more acute in Sydney than Perth.
  • Most of the new housing supply is not constructed in areas where it is most needed, with housing supply growth mainly limited to mid-to-high price segments.
  • Structural impediments weaken the ‘trickling down’ of new housing supply from mid-to-high price segments to lower-value segments, where affordable housing is needed for those on low incomes.
  • Targeted government intervention is needed to ensure an adequate supply of affordable housing.
  • Job opportunities and population growth pressures are greater in urban areas than regional areas. However, meeting population growth pressures through new house supply in urban areas is challenging due to existing land use.
  • The supply of units appears to be higher (all else equal) in already developed areas. Therefore, measures that further promote the construction of units could prove an effective pathway to easing price pressures and expanding affordable housing opportunities.
  • The impact of planning regulations on housing supply responsiveness is modest, though there is some evidence that government planning policies that promote housing growth are leading to an increase in housing supply.
  • Developers are more willing to work with restrictive policies that are implemented by planning officers with consistency, than with more lenient policies that come with conflicting consistency and advice.