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The consequences of not addressing housing supply

8 Dec 14

Much has been written about the need to address the under-supply of housing to improve affordability, including by REIA in this newsletter. The consequences of inaction are however far broader than high house prices and include economic and social disruption across the demographic spectrum.

Earlier this year, REIA hosted a roundtable discussion on housing affordability, which was attended by key Government and industry leaders from real estate, construction and finance sectors as well as community groups. The roundtable identified under-supply as a priority policy issue in addressing housing affordability.

According to a recent study by the Housing Industry Association on Australia’s housing requirements, annual new home building requirements between now and 2050 will be considerably higher than what has been achieved over the last 20 years. The study concludes that the nation will need to build an average of around 186,000 dwellings per annum. This requirement comprises 152,000 homes to provide housing for new households and between 30,000 and 34,000 dwellings to offset demolished homes. This figure would also satisfy the demand for new housing associated with a rise in real household incomes.

We are already seeing the consequences of not addressing housing shortages here in Australia. One of the groups affected are Australia’s expanding ranks of retirees with inadequate retirement savings – the average nest egg is little more than half of what is required for a modest retirement. Many are turning to manufactured homes in caravan parks as they provide an affordable solution for an ageing population.

With the number of Australians over 65 set to grow at double the rate of the total population, more retirees will turn to options such as these. The Productivity Commission has estimated that the number of Australians older than 75 would rise by about four million between 2012 and 2060.

An insight into what may be another consequence of inadequate housing supply is provided by Berlin.

In Berlin’s Kreuzberg district, which has a shortage of affordable housing, long-time residents have been priced out of their neighbourhoods as newcomers flock to the city as the local economy grows. This clash of cultures has actually resulted in violent street behaviour.

In Kreuzberg, rents have increased by 64 per cent in the past three years. Whilst in Berlin, on average, rents have increased by 43 percent. By comparison, the national economic gain during that time was 7 per cent.

The changes that are occurring in Berlin can not be just dismissed as the fall-out from gentrification with the shortages so great that the consequences are on a scale that amounts to social upheaval. An almost ironical consequence is that developers are backing out of earlier commitments to redevelop areas because of the community clashes.

Whilst the situation in Berlin may be readily dismissed as unlikely to happen in Australia, it is a pointer to what happens when there are severe housing shortages.

This article brought to you by REIA Manager Policy Jock Kreitals