Housing Supply

A key reason why fundamental problems in the housing market are never solved is because people seek to treat the symptoms rather than the cause.

This is true in business and in life, as much as it is in the housing market. It makes little sense to take medication for high blood pressure if the underlying cause is that you&rsquo;re overweight because you have a bad diet and you don&rsquo;t exercise.

People who hover around the sidelines of the real estate industry, sniping at things they don&rsquo;t like, are highly prone to demanding actions on the symptoms of a perceived problem when they should be addressing the underlying causes of the symptoms.

Treating symptoms, while ignoring causes, has a tendency to make problems worse. Right now, we have spectators to the housing market demanding controls on landlords because rents are rising.

Other spectators want draconian measures from regulatory authorities because prices are rising, bringing howls of outrage about housing affordability.

In both cases, their targets are investors, always a popular choice as scapegoats when there&rsquo;s growth in housing markets and it&rsquo;s characterised in media as a crisis.

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The natural impulse of the sideline whingers is to demand a crackdown aimed at investors, because they&rsquo;re always seen as the villains.

The reality for the issue of rapidly rising rents is that we need to be encouraging investors, not attacking them.

The symptoms of the problem are rising rents, but the cause is a chronic shortage of rental properties.

In my four decades of researching and writing about housing markets, I&rsquo;ve never seen vacancies so low in so many places.

Anyone genuine in their concerns (rather than having a whinge or grandstanding for political reasons) should be asking why we have such a shortage and how we can fix that fundamental problem.

Rental control is a quick fix medicine to treat the symptoms, while ignoring the underlying market health issues. It will make the problem worse by exacerbating the fundamental problem, which is that Australians have been massively discouraged from becoming investors.

Rental vacancies are a function of the activity of property investors. When people buy dwellings and make them available for rental in large numbers, there are ample properties for everyone who wants or needs to be a tenant, and rents are likely to be stable.

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But investors have been largely absent from the market in recent years. There has been a growing raft of disincentives to property investment over the past five or six years &ndash; including a series of negative measures by APRA, negative changes to depreciation rules and menacing political rhetoric at the last two federal elections, notably from the ALP which has been intent on scrapping negative gearing and increasing capital gains tax.

We&rsquo;ve also had state governments discouraging investors by hitting them with new taxes, fees and charges. The impact of all those different milestone events since 2015 has been a profound discouragement to investment. Some sections of media have characterised property investment as something akin to a criminal activity, abetted by politicians who have claimed the average investor is a rich greedy bastard who owns 15 or 20 properties and is ripping off the system &ndash; a blatant lie (the official data shows 75% of investors have average incomes and own only one or two properties) but lapped up by a careless media.

The short-term consequences include a rental shortage crisis and the long-term outcomes include fewer Australians who will be self-funded in retirement and will need to be supported in growing numbers by taxpayers. If governments respond to the twits on the sidelines and enforce controls on rental levels, rather than allow market forces to set them, that will be yet another disincentive to investors &ndash; and the problem will get worse.

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Limiting how much a tenant has to pay in rent is worthless if the prospective tenant can&rsquo;t find a vacant property at any price. That&rsquo;s the reality at the moment. There are so few vacant properties that there are dozens of applicants for every listing and people who desperately need a home keep missing out. Rents are rising because people are offering more than the asking rent in an effort to out-bid their competitors, not because landlords are asking extortionate rents.

And, as an aside, increasingly businesses can&rsquo;t fill job vacancies because willing applicants can&rsquo;t find anywhere to live. The only answer to this problem is to increase the supply of rental properties. And that means introducing measures that encourage property investors.

That will elicit further howls of indignation from the chattering economists and other sideline snipers, but it&rsquo;s the only way to fix this problem.

Rental control is a quick fix medicine to treat the symptoms, It will make the problem worse by exacerbating the fundamental problem, which is that Australians have been massively discouraged from becoming investors

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Why is there a housing shortage and why will government controls make it worse? Hotspotting's Terry Ryder

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GUEST OBSERVER
Despite repeated warnings around apartment oversupply and settlement risk, the number of dwellings being approved for construction across the capital cities remains unquestionably strong.
In July 2016, there were 17,380 capital city dwelling approvals which was the highest number of approvals since October 2015.  It was also the third highest monthly number of capital city dwelling approvals on record.  Despite a recent slowdown in capital city dwelling approvals there was a substantial rebound in July 2016.
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<h3>Monthly and 6 month average number of capital city house and unit approvals</h3>
<a href="/images/2016/10/04/2016-09-26--image1.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/10/04/2016-09-26--image1.png" alt="">
<h3>6 month average number of capital city dwelling approvals</h3>
<a href="/images/2016/10/04/2016-09-26--image2.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/10/04/2016-09-26--image2.png" alt="">
Looking at the split between houses and units over the month, there were 6,482 houses and 10,898 units approved for construction across the combined capital cities.  There have now been more units approved for construction than houses across the combined capital cities for 22 consecutive months.  Over the 12 months to July 2016, 57.9% of all capital city dwelling approvals were for units.
<h3>6 month average number of capital city house approvals</h3>
<a href="/images/2016/10/04/2016-09-26--image3.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/10/04/2016-09-26--image3.png" alt="">
<h3>6 month average number of capital city unit approvals</h3>
<a href="/images/2016/10/04/2016-09-26--image4.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/10/04/2016-09-26--image4.png" alt="">
Over the past year, there have been 76,356 capital city houses and 104,835 capital city units approved for construction.  In each of: Sydney, Melbourne, Brisbane and Canberra there have been more units than houses approved for construction over the past year.
Sydney - there were 54,667 dwelling approvals over the past year which is 7.3% higher than the previous year.  This figure comprised of 16,360 house approvals (+3.2% yoy) and 38,307 unit approvals (+9.1% yoy).
Melbourne – over the year to July 2016 there were 57,428 dwellings approvals which was -0.2% lower over the year.  25,880 of these approvals were for houses and 31,548 were units, with the year-on-year changes recorded at +11.2% and  -7.9% respectively.
Brisbane – The 30,901 dwelling approvals over the past year consisted of 11,210 houses and 19,691 units.  Overall approvals are 4.0% higher over the year with house approvals -1.4% lower and unit approvals 7.4% higher. 
Adelaide – there were 6,119 houses and 3,899 units approved over the past year resulting in 10,018 total approvals.  Over the past year, dwelling approvals are 10.9% higher with house approvals up 9.3% and unit approvals 13.5% higher.
Perth – the number of annual dwellings approvals fell by -24.3% over the year to 20,963.  Over the year, the 14,202 house approvals were -26.7% fewer than the previous year and the 6,761 unit approvals were -18.6% less than a year ago.
Hobart – there were only 989 new dwellings approved for construction over the year, 799 of which were houses and 190 units.  House approvals were -22.7% lower year-on-year and unit approvals were down -10.8%.
Darwin – there were 1,304 dwelling approvals over the past year which was -12.7% lower year-on-year.  Over the year, the 657 house approvals was -22.8% lower than the previous year and the 647 unit approvals were 0.6% higher than the previous year.
Canberra – there were 1,129 houses and 3,792 units approved for construction over the past 12 months.  There were -8.1% fewer house approvals than over the previous year while unit approvals were 24.7% higher over the year.
Despite policy makers and analysts (including CoreLogic) voicing concerns about the level of housing construction currently underway, particularly for units, approvals in capital cities generally remain unquestionably strong.  From here it will be interesting to see how many of these approvals immediately progress to commencement and ultimately through to a completion.  Tighter lending conditions for both developers and purchasers for off-the-plan units is likely to result in a larger proportion of approvals that don’t proceed through to a finished product.  The data also reiterates why purchasers of off-the-plan units in major capital city housing markets should be very selective with regard to the types of units they purchase.
Importantly, oversupply concerns are most visible across specific and well defined geographic areas and product types. CoreLogic’s Settlement Risk Report identifies the Melbourne inner city and Brisbane inner city as the two markets where the largest amount of unit supply is likely to be delivered over the next 24 months.
Cameron Kusher is research analyst for CoreLogic. You can contact him <a href="https://blog.corelogic.com.au/about/">here</a>.
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Capital city dwelling approvals rebounding: Cameron Kusher

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Based on the relationship between demonstrated housing demand and advertised stock levels we are seeing relatively more stock available for sale compared to demand for that stock across the capital cities at the moment.
The months of supply figure compares the number of unique properties advertised for sale to the number of transactions in the market. The analysis provides unique insight into how long it should take to clear the volume of stock currently available for sale. It is important to note that off-the-plan housing stock is typically not advertised for sale as individual properties and as a result is not included within this analysis.
Across the combined capital cities, there is currently 4.4 months’ worth of residential properties being advertised for sale. As the first chart shows, the months of supply is currently higher at this point of the year than it has been each year since 2012. The increasing months of supply is largely due to the slowing rate of transaction activity rather than a spike in properties available for sale, indicating demand has diminished relative to advertised supply levels which is pushing the figure higher. <a href="https://www.corelogic.com.au/resources/property-pulse/article-graphs-img/2017-05-15--image1.jpg" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/05/19/rsz_kusherchart.png" width="700" height="425">
Sydney – there is currently 3.0 months of established housing supply available for sale across the city. The city has seen consistently low months of supply over recent years however, the figure is currently at its highest level for this time of year since 2012.
Melbourne – established housing stock currently sits at 4.2 months of supply for the city. Supply levels remain quite low but are at their highest levels for this time of year in five years.
Brisbane – the city currently has 5.1 months of established housing stock available for sale. The months of supply figure is higher than it has been at this time of year for each of the past five years.
Adelaide – there is currently 3.7 months of established housing stock available for sale. Although stock levels are higher than they were at this time over the past two years, stock levels were higher over the three years previous to that.
Perth – at the moment there is 8.3 months of established housing stock available for sale throughout the city. This is a high months of supply figure relative to other capital but it is well down on the 8.7 months at the same time last year.
Hobart – the months of supply figure for Hobart is the lowest it has been for many years. There is currently 4.1 months’ worth of established stock available for sale which is down from 5.0 months a year ago and the 7.2 months the year previous.
Darwin – across the city there is currently 6.7 months of established housing supply which is well down on the 10.5 months at the same time a year ago and 7.5 months over the previous year.
Canberra – there is currently 2.6 months of supply of established housing stock for sale in Canberra. The months of supply level is the same as what it was a year ago but lower than the previous years highlighted.
Based on these figures it seems that the supply of stock for sale relative to demand is increasing in Sydney, Melbourne and Brisbane. Meanwhile demand is outweighing supply in Hobart and Canberra leading to a decline in the months of supply. In Perth and Darwin supply continues to dramatically outweigh demand but the balance is slowly improving. In Adelaide there has been little change in months of supply over recent years suggesting the market is in relative equilibrium.
Cameron Kusher is a research analyst for CoreLogic. You can contact him <a href="https://blog.corelogic.com.au/about/" target="_blank">here</a>.
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Fewer buyers results in greater months of supply: Cameron Kusher

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<div>Now the construction sector is expanding again per AIG.</div>
<div> </div>
<div>Some good analysis from AIG that is well worth a read - apartment construction is an obvious strong point, which makes the drag on second quarter GDP by dwelling construction something of a mystery.</div>
<div> </div>
<div>Perhaps the residential construction industry is operating at or close to its full capacity?</div>
<div> </div>
<div>In any case, I expect dwelling construction to contribute to the economic growth in the third quarter.</div>
<a href="/images/2015/09/09/PCI.jpg" target="_blank">Click to enlarge</a>
<img src="/images/2015/09/09/PCI.jpg" alt="">
 
All three of AIG's Performance Indices are now in expansion territory - manufacturing, construction and services.
<a href="/images/2015/09/09/AIG.jpg" target="_blank">Click to enlarge</a>
<img src="/images/2015/09/09/AIG.jpg" alt="">
Source: AIG
PETE WARGENT is the co-founder of <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blogger</a>. 
His latest book is <a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>.
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Construction expands in August: Pete Wargent

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GUEST OBSERVER
CoreLogic’s Accumulation Index looks at the total returns from the housing asset class factoring in the change in the value of the dwelling and the gross rental return from the property.
The CoreLogic Accumulation Index shows that nationally, the total returns from the housing asset class over the 12 months to August 2017 were 13.2%.  Because the return is calculated from value change as well as the gross rental yield, you tend to find that houses have a superior value growth performance while units offer superior rental returns.  
Over the past year, total returns for houses nationally have been recorded at 13.5% compared to a 12.0% return for units.  Over the 10 years to August 2017, the annual total returns for housing nationally have been recorded at 8.8%, split between 8.9% for houses and 8.5% for units.
<h3 class="text-align-center">Annual total returns from the housing asset class, National</h3>
<a href="https://www.urban.com.au/expert-insights/building/2017-09-18-image1.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/09/20/2017-09-18-image1.png" alt="">
Total housing returns have generally been superior in capital cities to regional markets however, in the 2008 and 2010-11 downturns, returns slumped by a greater magnitude in the capital cities.  Over the past decade, combined capital city annual total returns have been recorded at 9.3% with returns of 9.5% for houses and 9.0% for units.  Over the 12 months to August 2017, total returns have been recorded at 14.0% for houses and 12.3% for units.  Like the national chart, the recent data for the combined capital cities shows that total returns have started to slow.
<h3 class="text-align-center">Annual total returns from the housing asset class, combined capital cities</h3>
<a href="https://www.urban.com.au/expert-insights/building/2017-09-18-image2.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/09/20/2017-09-18-image2.png" alt="">
Regional markets are also beginning to see total returns slow however, the returns over recent years have generally not been as strong as those across the combined capital cities.  Over the past 12 months, total returns have been recorded at 11.7% for houses and 10.2% for units.  Over the past decade, annual total returns for housing outside of the capital cities have been recorded at 7.0%, 7.2% for houses and 5.6% for units.
<h3 class="text-align-center">Annual total returns from the housing asset class, combined regional markets</h3>
<a href="https://www.urban.com.au/expert-insights/building/2017-09-18-image3.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/09/20/2017-09-18-image3.png" alt="">
Hobart has recorded the strongest annual growth of all capital cities over the past year and it also has some of the highest rental yields which has meant it has had the strongest total returns.  Total returns for houses over the past year have been above 10% in each of Sydney, Melbourne, Adelaide, Hobart and Canberra.  For units, double-digit total returns have been achieved over the past year in each of Sydney, Melbourne and Hobart.  Units in Darwin were the only capital city property type to achieve negative returns over the past year.
<h3 class="text-align-center">Annual total returns from the housing asset class, individual capital cities, to Aug-17</h3>
<a href="https://www.urban.com.au/expert-insights/building/2017-09-18-image4.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/09/20/2017-09-18-image4.png" alt="">
With capital growth now appearing to have peaked and rental yields at record lows it is reasonable to expect a further moderating of total returns over the coming months.  
The other important thing to consider when looking at total returns is the calculation of the rental income.  Although rents are increasing in many areas, the assumption in a gross rental yield calculation is that the property is occupied for 52 weeks of the year.  In some parts of the country this is increasingly difficult to achieve and it can eat into the investment returns.
The total returns data, particularly for the past decade, shows why housing investment has been so popular and hit record highs.  
Returns have been fairly consistent and less volatile than equities however, the ongoing strength and the evidence of a recent slowdown should give investors pause for thought.  
With mortgage rates starting to increase for investors, record-high levels of new housing supply and value growth slowing, housing investors shouldn’t assume that the types of returns seen over recent years will continue to be replicated going forward.
Cameron Kusher is research analyst for CoreLogic. You can contact him <a href="https://blog.corelogic.com.au/about/" target="_blank">here</a>.
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Total returns from housing are starting to ease: Cameron Kusher

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Housing undersupply not only in Australia but globally: Nerida Conisbee

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EXPERT OBSERVATION
The NSW Premier's priorities for the next four years do not include housing supply.
The previous priorities for the NSW Premier for 2015 - 2019 included a number of priorities around housing supply, but these have been left off the 2019 - 2023 priorities.
While many of the Premier's new priorities are laudable, the absence of any priority around housing supply seems to signal a lack of interest in how the state will house population growth in an affordable manner.
Premiers Priority 7 is about reducing street homelessness by 50% by 2025, and this is a laudable priority to pursue.
Urban Taskforce member Toga has led the way in this area with their Addison Project in Randwick, which provides accommodation free of charge in an old motel that is awaiting development.
Another Urban Taskforce member, PAYCE, supports the Sydney Street Choir and they run programs that help with homelessness.
The last round of Premier's Priorities included 'Making Housing More Affordable' (Including target housing completions per year) and "Faster Housing Approvals' and ‘Accelerated Rezoning for Housing' but none of these have been included in the latest priority list.
While housing value has decreased in the last few years, there is now a big housing approval shortage that will inevitably lead to an under supply in the years ahead. This will reduce the number of new homes required for population growth, and inevitably lead to housing prices going up again.
The priorities from the last four years that referred to housing supply related to the planning system seem to have been replaced by priorities for greener public spaces and for greening the city.
While these are worthwhile areas to aim for they do not compare to the economic importance of housing supply and housing costs.
Clearly how housing is managed in a time of high population growth is an important policy issue for the NSW Government that should be measured. As the Premier in her media Release said, 'What gets measured gets done'.
CHRIS JOHNSON is the Urban Taskforce CEO
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Berejiklian's priorities leave out housing supply: Chris Johnson

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The building of inner city apartments in Melbourne and Sydney has slowed to a dangerous level, according to The Australian columnist, Robert Gottliebsen.
He suggests governments are making the looming unit shortfall worse.
"Not only is substantial employment and business activity at stake in both states, but in Sydney the NSW government has dreamt up an unbelievable plan that will halt apartment construction in many areas, potentially for years," he wrote.
He says apartment building has slowed dramatically because communities and councils across the city are making it as hard as possible for high density living projects to find a way through the approval processes.
"Normally such decimation of an industry is caused by demand, but in June 2019 demand is not the problem."
The supply in both cannot be generated to meet looming demand.
He noted at the moment in both cities there is excess supply but demand momentum helped by the return of Chinese to the market has already lifted Sydney apartment prices by 10% after they had fallen by 20 to 30%.
"During 2020 the demand-supply ratio will change markedly."
In both Sydney and Melbourne it takes about three years for a development to get through the approvals, while in other states the apartment approval process takes less than a year, he said.
In Sydney the current approval mess means that production of apartments is now down 40%.
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Governments making the looming 2020 Sydney and Melbourne apartment shortfall worse: Robert Gottliebsen

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Sydney’s latest five-year housing supply forecast, written by the NSW Department of Planning and Environment, anticipates a solid pipeline of construction.
NSW Department of Planning and Environment Executive Director, Justin Douglas, said the new forecast shows almost 192,000 new dwellings will be built across the city during 2018/19 to 2022/23.
Douglas said Sydney needs to build 725,000 new homes in the next 20 years, or around 36,000 per annum, to accommodate a growing population.
"We’re forecasting to meet that demand over the next five years, with just over 38,000 homes per year on average planned for the city," he said. 
He believes it's good news for first home buyers as supply levels are strong and there are more purchasing options.
The forecast shows the top five local government areas where additional new homes will be built over the next five years are Parramatta (22,100), Blacktown (18,300), Sydney (14,850), Liverpool (11,950) and The Hills (11,700).
<img src="https://www.urban.com.au/images/2019/6/7/Supply%20hotspot.JPG" alt="">
"The forecast helps to inform decisions on future land use zoning to ensure there’s a solid pipeline of new housing supply," Douglas said. 
"It takes account of current residential developments under assessment, approved but not commenced construction, and those under construction, as well as analysis of likely future development under current zoning and planning controls.
"The preparation of the forecast has involved significant input from local government, the development industry, service providers, and state agencies."
Click <a href="https://www.propertyobserver.com.au/images/2019/6/7/local-government-area-forecast-map-2400x1698.jpg" target="_blank">here</a> to enlarge
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2019/6/7/local-government-area-forecast-map-2400x1698.jpg" alt="">
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Parramatta and Blacktown top Sydney’s official housing supply pipeline forecast 

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EXPERT OBSERVATION 
The proposed changes by APRA to its guidance on restrictions on borrowers repayment obligations will help the supply of new housing.
The Australian Prudential Regulation Authority (APRA) has proposed changes to its guidance to banks and Authorised Deposit-taking Institutions (ADIs) that will increase the maximum borrowing capacity for borrowers in relation to housing.
The regulator believes that the measures that were introduced at a time of heightened risk can now be reduced.
Rather than using an interest rate of 7% ADIs would be permitted to set their own minimum interest rate floor for use in serviceable assessments. APRA does still propose a buffer on interest rates and while stating that risk has reduced APRA is still concerned about high house prices, low interest rates, high household debt, and subdued income growth.
APRA also commented that there was too big a difference emerging between owner-occupier principal and interest loans compared to investor interest-only loans.
The Urban Taskforce is very supportive of APRA’s proposed changes as clearly house prices have dropped significantly in cities like Sydney and this is reducing confidence in the new housing market.
The re-election of the Morrison Government means negative gearing and capital gains tax will not change so more certainty is coming into the housing market. This greater certainty along with APRAs changes are positive signals for the housing sector.
To fully lift housing supply to the levels needed will also need support at state government level to ensure that levies on new homes are not excessive.
In Sydney the state government’s proposal to lift the cap on local infrastructure contributions from July 2020 could add $60,000 to the cost of each home or apartment. All levels of government must do their bit to ensure housing supply matches the need.
CHRIS JOHNSON is the Urban Taskforce CEO.
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