Australia’s housing crisis won’t be solved by building more homes, with addressing the nation’s empty bedroom issue more critical to slowing down rampant property price growth.
Most housing experts contend high house prices have been driven mostly by a failure to build enough homes, but RBA governor Michele Bullock says the way houses are being constructed, and the amount of people living in current structures are also adding to the problem.
Wentworth independent MP Allegra Spender asked the RBA if supply was keeping up with demand and if new policies from the government would add to higher prices for houses.
“Yes, you’re absolutely right, it’s a supply issue and are we close to meeting it? All estimates suggest we are not,” Ms Bullock answered.
Ms Bullock also said the way Australians were using existing supply was adding to the issue.
“Demand for housing is driven by new households being formed and the size of the household, and we’ve had declining household size,” she said.
“Supply is an issue but demand is impacted not just by the number of new households being formed but the average household size.”
Ms Bullock’s comments are based on separate research from Cotality, which shows couples without kids and people living alone make up 61 per cent of households, raising the question of how well a housing market focused on bigger families is serving real demand.
Cotality head of research Eliza Owen said on a recent episode of The Good Oil with Scott Phillips the number of Australians living per household had fallen by 2.6 to 2.5.
While it sounds small, it means four per cent more dwellings are required to fit the housing need.
“I’d hate to say you have to live with people, as share houses or living with family is hard,” she said.
“But then I think of the other end of the spectrum, the empty nesters who don’t need all the bedrooms they have, but they don’t pay land tax and don’t have the family home counted in the asset pension test.
“Maybe it’s time to look at reviewing those incentives and encouraging downsizing.”
But Ms Owen conceded it was “very hard to ask someone to leave their home and find a new dwelling”.
The federal government is setting a 1.2 million new house target.
Australia is still 40,000 new home approvals short of annual federal government targets intended to tackle the nation’s housing crisis even though it was implemented 13 months after they were implemented.
The nation’s new home ambitions took a backwards step in July as building approvals plunged, setting up the probability that a goal of building 240,000.
Experts predict the amount of houses needed to be building per year will take closer to 15 months.
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Ms Owen said even if Australia built record amounts of homes it might not solve the current price issues.
“If we take, for example, the national housing accord target, the closest we got to 1.2 million houses complete was the five years until December 2019.
“That was a case where interest rates were a lot lower, investor participation was a lot higher, we supplied a heck of a lot of dwellings but the outcomes weren’t great.”
Ms Owen said these buildings were up so quickly and building defects were rife, that it didn’t add to home ownership objectives.
Ms Bullock also pointed out despite fears, interest rates and government policies were not having a long-term impact on prices.
However, the RBA does not forecast government schemes will put pressure on housing, even though it adds to demand.
“At the very margin, you may see a little more upward pressure on house prices in the short term, recognising that first-home buyers account for about 20 per cent of the flow of new housing credit,” RBA assistant governor Brad Jones told Ms Spender.
“The Treasury has also done some work on medium-term supply response, and their sense is that we will see, over time, an uplift in supply in response to that extra demand as well, and so that will end up dampening the price effect over the medium term.”
