Does Australia have an oversupply of housing?

Ross Greenwood speaks to ANU Associate Professor, Ben Phillips, about a new report finding that Australia had an oversupply in some markets.

Introduction: Does Australia have an over supply of housing?

Ross Greenwood:  Welcome back to Money News right around the country now. Today, the international monetary fund which is absolutely key in its assessment of Australia has indicated that it expects Australia’s economy to not perform as strongly as one of the reserve bank or the federal government expect. It does say, however, that growth is expected to pick up modestly. The low wage growth will weigh on household incomes and consumption. I think there isn’t any surprise there for most people. It does also say that the housing market is expected to cool but imbalances lower housing affordability and household debt vulnerabilities are unlikely to be corrected any time soon.

In the absence of a major shock to the economy, the cooling is expected to be driven by the building completion rate. It actually says that the government and the states have basically done appropriate things. But what they’re also saying is other factors could be at play here. Now, this comes at the same time, but a separate survey has come out from the Australian National University. Now, this particular survey says that Australia does not in fact have a housing shortage, that in those city areas of Sydney, Melbourne, and Brisbane are some of the most oversupplied regions according to the survey.

The analysis says that the nation’s oversupply is around 164 thousand dwellings. Or if the significant increase in unoccupied dwellings is excluded, still 32,000. The associate professor Ben Phillips is the principal research fellow at the Centre for Social Research and Methods at ANU. The co-author of this particular working paper is online right now. Many thanks for your time, Ben.

Interview with: Ben Phillips, ANU, Associate Professor

Ben Phillips: Good afternoon, Ross.

Ross Greenwood:  Good afternoon to you. Just one issue in regards to this. Quite clearly, you are looking at this and taking the attitude. Not necessarily in regards to, “Is housing a good investment or poor investment?” You’re looking at more for where the people live. Where do actually people who were first time buyers, renters, people who  can’t afford house, and where do they go to. What you’re saying is that there is in fact plenty of housing around the place to go around.

Ben Phillips: That’s pretty much it, Ross. They’re really looking by comparing these what we expected would have been demanding to them, population growth. I think it turned up to what was actually supplied in the market. We found that across the start of deal that surplus, but there are regions in surplus and regions in shortage. But the inner cities, their region just have a look at start of the in Sydney, Melbourne or Brisbane. You’ll see a lot of crimes out there. Probably more has been dealt than is needed. That’s going to lead us an interesting result start down the track.

Ross Greenwood:  The interesting results are either if there is, shall we say, an oversupply that rents ultimately come down, or prices come down. Something happens, you can say that the international monetary fund sees it if there’s any unwinding without a sudden crash. It’s going to take some time to actually unwind. In the meantime, it continues to say that lack of affordability is a problem. Is that your prognosis as well?

Ben Phillips: Yes. Look, we don’t see a huge response in terms of the price. There is a small surplus that lets you set a 160,000, or 32,000, and how you look at it. That’s relatively small compared to stock of over 9 million. When I think it’s going to have large impact, we’d like to see very strong correlation there. We’ve cross changed it over time. We certainly see with surplus would’ve done well in terms of price growth. There’s always the other factors going on. I guess our hypothesis is there’s other things beyond what’s being built that have probably the problem here. Things like low interest rate and other matters.

Ross Greenwood:  Because there is another issue. And you make the observation of course that there is a large number of empty properties that are out there that otherwise could be occupied. Of course, government have started to hit some of those empty dwellings with additional taxes especially to those people who are living overseas. That’s not uncommon because other countries do exactly the same thing. But that doesn’t necessarily mean that those places become occupied. It simply means that the owners pay more tax. That’s quite a different matter, isn’t it?

Ben Phillips: It does, yes. As you pointed out, we did see a pretty big increase in unoccupied dwellings. We started our research by some 2001. Data of the census of 2016 since we start on. In a city area, you do see a lot of that new stock has become ineffectively vacant. Maybe that’ll get start up over time. Maybe it won’t. Maybe they’ll have influence on a broader economy in terms of a slow down. Maybe they’ll have an impact on rent and affordability. But suddenly there’s been an uptake in the vacancy rate of those areas.

Ross Greenwood:  The question is just to have this place at in terms of the future of housing and the future of not only rent but also in the future of housing value because the two are intertwined. You get the sense that if there’s an oversupply, that the value of rent starts to at least moderate or come down and if that were the case, then you would expect under normal conditions that the value of properties might moderate as well.

Ben Phillips: Look, I think that makes a lot of sense. But they have a market. As I showed you now, Ross, it doesn’t always makes a lot of sense. We see very strong house price growth at times and the economy looked like at the moment is not actually all that strong. But we’ve had a house price growth at 20% in Sydney even though — Income growth has not really done anything beyond prices, so it doesn’t change things. A lot of it can be just momentum-driven. It’s always hard to know which way these things are actually going to go. We haven’t seen a lot of impact in terms of the surplus reducing prices at this point. But that’s not to say that it won’t happen in the near future.

Ross Greenwood:  It’s going to be interesting to watch. I did know that auction clearance rates over the weekend were below 60% in Sydney and below 70% in Melbourne. I think it was the first time for quite some time it’s been below 70% in Melbourne. Ben Phillips is a research fellow at the Centre for Social Research at ANU and also the co-author of that report suggesting that there is in fact an oversupply of property. An undersupply is meaning the housing industry always say. Ben, we appreciate your time in the program.

Ben Phillips: My pleasure.

 

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