What housing shortage?

I have been reading/watching with interest recent coverage on Australia's reported shortage in housing, identified as a key reason for the recent and projected increases in Australia's house prices and reduced affordability.

Many commentators report much of this information as fact, despite it usually being provided by industry groups or construction/building businesses. On top of this, many local papers report information provided by local real estate agents, again verbatim, which is likely to be biased towards presenting an upbeat, optimistic view of the housing market.

Some examples of the reporting on the relationship between housing prices, housing shortages and population growth -

http://www.smh.com.au/business/housing-shortage-to-quadruple-hia-20100318-qgzu.html

http://www.smh.com.au/business/sydney-house-prices-tipped-to-push-higher-20100311-q0em.html

http://www.dailytelegraph.com.au/money/money-matters/sydney-the-city-of-broken-dreams-as-mortgage-stress-mounts/story-fn300aev-1225833209356

http://hills-shire-times.whereilive.com.au/real-estate/story/prepare-for-year-of-the-investor/

The general feeling is that there is an impending housing shortage crisis/disaster - so families have to "get in on the action", the effect of which is to keep pushing prices up.

But a look at the underlying ABS data on population growth tells a somewhat different story.

For example, there was an approximate 79,000 increase in the population of NSW for the year ended 30 June 2008 (http://www.abs.gov.au/ausstats/abs@.nsf/Products/3218.0~2007-08~Main+Features~New+South+Wales?OpenDocument#PARALINK3). Looking behind this data (see the spreadsheets in http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/3218.02007-08?OpenDocument), this 79,000 increase is roughly split as follows - Inner Sydney (17,000), Greater Northern/Coastal Sydney (4000), Greater Western/Southern Sydney (26,000) and Greater NSW (32,000).

This information tells us that most NSW house price growth should be in the Greater Western/Southern Sydney or Greater NSW area (these areas appear to account for about 70-75% of the population growth in 2008).

But NSW government housing data (http://www.housing.nsw.gov.au/About+Us/Reports+Plans+and+Papers/Rent+and+Sales+Reports/) shows that across NSW there was an annual reduction in housing prices to June 2008. For the year to June 2007, NSW population growth was 88,000, 67% of NSW population increase was in Greater Western/Southern Sydney or Greater NSW area, and prices were flat in some areas and marginally increasing in others.

It is true that the same housing data also shows house price increases to June 2009, and this does coincide with higher population growth in NSW (up to 115,000 although no regional data is available).

The problem with the population growth argument is that it ignores the obvious - it is likely (based on the experience of the USA, UK, Spain and Ireland) the current housing boom is in part driven by historically low, emergency level interest rates, easy credit, progressive reductions to income tax rates over the last few years, the first home buyers grant, and of course, investment speculation. And maybe the reason we are hearing so much about a housing shortfall is that it aligns to particular groups interests e.g. real estate agents, housing industry groups, construction business and the government (as a way of explaining away an asset bubble).

I think that more responsible, objective reporting by the media is in order to start challenging the information they are given - particularly if we want to avoid going down the calamitous property markets of the UK, USA, New Zealand, Spain and Ireland, where the same types of media reporting justified the booming markets until they fell apart.

And reflecting on it, what does a housing shortage actually mean? Is it that people are choosing between becoming homeless or buying a house? Not likely. People will (and are) renting instead of buying - and financially it is getting to the point where that makes more sense than buying a house. Maybe that will be the start of the bubble deflating.