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Property Supply Crisis


The Supply Crisis

Australia is currently experiencing a housing supply crisis. Official figures suggest that the current shortfall for both houses and apartments is 100,000 and that is set to rise to 500,000 by 2029.

Last year, there was just one dwelling completed for every three increases in population, less than half the rate that applied 10 years earlier.

While NSW accounts for almost one third of the nation’s total population, the state is contributing less than 20% of new homes.

Indeed Australia is building fewer houses per head of population growth than at any time on record.

So what are the problems with supply?

There are a number of constraints which have restricted land supply in Australia’s urban areas. These include:
    •    Geographical growth boundaries, which encircle Sydney, such as the Blue Mountains;
    •    An inability to fund new infrastructure, which forces new development into existing areas rather than on the urban fringe (See Funding Urban Infrastructure below);
    •    New sustainability measures and a push for greater biodiversity protection, which has limited land development (see Urban Consolidation below);
    •    Onerous planning controls and slow land release policies, which causes approval timetables to blow out by up to 15 years;
    •    A  significant knowledge gap about the true state of land supply, because of the myriad of planning policies and processes;
    •    Rising government charges and taxes on land development, making it more expensive; and
    •    A failure to respond adequately to growing demand for housing – it’s got away from us.

Funding Urban Infrastructure

Previous research prepared for the Residential Developmental Council revealed that nationally government taxes, charges and compliance costs make up 25% to 33% of the cost of new housing. These charges are ultimately passed on to the consumer which reduces affordability. The requirement to provide infrastructure also results in a development lag which restricts supply. A large amount of theoretical land supply trumpeted by governments is unlikely to eventuate for at least five years, given the time it takes to build the infrastructure required. Even once such infrastructure is provided, the corresponding problem has become further exasperated as the problem has taken 5-10 years to resolve.

Urban Consolidation

Many Australian State Government planning policies now favour urban consolidation at the expense of suburban growth, e.g. new land release. However, these policies are failing to achieve their desired planning effect because there has not been a ‘demand transfer’ by consumers. In short, new home buyers do not favour a medium to high density housing product to the extent predicted in many State government planning strategies.

For example, the NSW Government’s Metropolitan Strategy for Sydney sets an ambitious target of 60% to 70% of all new housing as infill – a target at odds with typical consumer demand.

At the same time, suitable infill sites are difficult to acquire, they are prone to greater risks of political intervention (NIMBYISM and Saveour Suburbs) and attract almost the same level of new housing taxes as detached dwellings.

The result has been an escalation of housing prices across the board, and a stagnation of the market as consumers resist both the artificially inflated price of housing and the limitations on choice. This is most evident in Sydney, where new housing activity is said to be at its lowest point in over 50 years.

Finally, the global financial crisis has added to the problem as property developers were squeezed for funds in 2008 and 2009.

Rising real estate prices are locking out first time buyers and lower income earners face rental stress as they are forced to compete with the middle class. Public services such as schools, hospitals and transport are also stretched by urban consolidation.

In the short term, there are no signs that rising property prices are set to slow despite a recent spate of interest rate rises pushing home loan lending rates to 7% to 7.5%. As affordability continues to worsen, for some The Great Australian Dream is becoming exactly that, a dream.


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