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Shedding a light on housing supply

Almost 1.5 million new homes were built in Australia in the 10 years from 2006 to 2016 but the growth of housing stock in each state and territory was uneven, ranging from 26 per cent in Western Australia to just 12 per cent in New South Wales, new Australian Housing and Urban Research Institute (AHURI) research reveals.

The research, The uneven distribution of housing supply 2006-2016, undertaken for AHURI by researchers from Curtin University, The University of Sydney and The University of Adelaide, examines the quantity, composition and distribution of new housing supply across Australia between 2006 and 2016, looks at what influenced the differences in local rates of production and what local and state governments can do to increase diverse new dwelling supply.

“We wanted to understand patterns of new housing supply, whether supply is driven by price or other factors, and what government could do to encourage new supply in specific locations,” Curtin University Lead Researcher Steven Rowley said.

“When considered in relation to population numbers, the distribution of new supply was quite even across Greater Sydney.

“In contrast, Greater Melbourne saw strong supply in its inner and outer areas but little in established middle areas, while supply in Perth and Adelaide was mostly on the urban fringes.”

It might be no surprise that housing commencements in Perth, during the 10-year period studied in the research, was primarily concentrated in the outer fringes of the Perth metropolitan area, and Professor Rowley said the reason why was mainly affordability.

“I think it is about affordability primarily, and about space to a certain degree,” he said. “We are quite fortunate in WA compared to many other states to have, particularly now, relatively affordable housing.

“I think people looking to buy have a certain budget and they can sustain a certain amount of mortgage payments, and these are the products that match their budget.

“So people are moving as close as they can, if you like, to where they really want to be. They get as close as they can given their particular budget.

“A lot of people don’t have a tremendous amount of money to spend on housing, and these areas offer the best value for them. It is a balance between being as close to employment as you can and actually entering homeownership.”

Another report from AHURI, The housing aspirations of Australians across the life-course: closing the ‘housing aspirations gap’, showed overwhelmingly that the key attribute households sought from their housing was safety and security.

“It just happens that our outer areas are delivering that safety, security and homeownership in a reasonably affordable way, which has attracted people to those areas,” Professor Rowley said.

Another finding from the report is that almost a fifth of young Australians (21 per cent) would like to move from a house to an apartment to meet their aspirations, well over double the rate of the mid-life and older age cohorts (eight per cent and seven per cent respectively). This in some ways has compounded the uneven distribution, but Professor Rowley said Western Australians lacked options for middle density.

“What we don’t do well in Perth is to provide options,” he said. “You have an apartment, which is reasonably priced in many of the inner areas, and you have land and housing on the outer areas, but you don’t have a tremendous amount that is affordable between those two areas, and that is where we are really failing – that missing middle.

“Delivering affordable products in established suburbs, we do tend to see a lot of subdivision of larger lots which create some really expensive products, and we don’t have those smaller lot sizes and terraced housing.

“We are getting better but there is still a long way to go before we have a very significant scale of delivery.

“The fact that we are not designing quality medium-density housing in our areas, the medium-density design codes – which are a bit overdue – will hopefully provide some clarity for developers.

“I think once developers can understand what they can and can’t do, it simplifies the process somewhat and we might see some better outcomes.”

Professor Rowley said making constructions in established suburbs easier, with less complexity and shorter construction periods, would help to establish the missing middle, but for developers keen to turn a profit, building on land in outer areas was an easier proposition.

“One of the key things to note is the fact that we have a large supply of housing on the outer areas because it is just easier for developers to build that sort of product,” he said.

“It is easier in the terms of planning, as the infrastructure requirements are often less complex than building infill. Ultimately developers need to earn a profit and being able to access land that is relatively easy to develop when there is a demand there allows the developer to realise these profits.

“Developers have a right to earn a return. They are taking on the risk and it just happens these areas tend to be the less risky development options, so developers have taken that – and we have a long history of this.

“The way the industry is structured, it just makes greenfield development and separate house building construction the most efficient way of building in WA.

“Ultimately new dwelling supply relies on the private sector to be able to make money to compensate for the risk of undertaking development.

“If there is no profit, there is no development, so market conditions must be right. Government can help by making the development approval process as efficient as possible and monitoring the costs of urban regulation.”

According to the research, between 2006-16, WA witnessed the greatest increase stock at 26 per cent, however Professor Rowley said despite the recent government incentives for homebuilding, new housing commencements were just a drop in the ocean when compared to housing construction in the research period.

“It is going to be a short-term boost,” he said. “We will probably have somewhere between 3000-5000 new dwellings which, quite frankly, given what we were building in the middle part of the last decade is a very small amount.

“We were building an awful lot of housing between 2006-16, it is only the last five years we have dropped away.”

Professor Rowley said due to the smaller amount of housing commencements, we would not likely see a tremendous impact on the overall supply of housing.

“Once you remove all these boosts and grants, demand is likely to fall away because you pulled forward a lot of that demand, as people are building now instead of waiting,” he said. “It will probably even out over a 12-24 month period unless we get some significant growth in population, so I don’t see it making much of a massive difference in terms of the overall distribution, just a short-term and well-needed boost.”

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