For the last decade, Australia has produced 150,000 homes each and every year.
Over this time, our nation’s population has grown, while the number of people living in each existing home has fallen.
It’s clear the numbers just don’t add up.
As any economics student will tell you, if demand exceeds supply, prices will rise – and that goes for buildings as much as it does for bananas.
A critical shortfall in the number of homes in our capital cities has resulted in rapidly rising rental and sales prices. In this climate, first home buyers can be forgiven for thinking that the dream of home ownership is, in fact, a fantasy.
In 2007, the Property Council of Australia sent plastic bananas to state and federal MPs with a cheat sheet on housing affordability. Evoking Cyclone Larry, which devastated fruit farms in Northern Queensland, we reminded politicians of the basics of ‘banana-nomics’: when there is a shortage, the price goes up.
But while you can forego your daily banana smoothie, everyone needs a roof over their head.
The International Monetary Fund recently ranked Australia as the third least affordable place in the world to buy a house – behind only Belgium and Canada.
Housing is generally considered to be affordable when households renting or purchasing are able to pay their housing costs and still have sufficient income to meet their other basic needs such as food, clothing, transport, medical care and education.
The World Health Organisation recognises that housing affordability has direct and indirect influences on health. When people spend a large proportion of their income on housing, they must make trade-offs – sacrificing medicine, fresh food or heating for example. It’s easy to see the cascade of harmful outcomes that can affect people’s health and well-being.
Fortunately, the pace of building activity is beginning to step up. RP Data’s latest Australian Residential Development Outlook points to building approvals hitting a 30-year high over the next financial year.
The report outlines the economic indicators that point to the right market conditions for growth: low interest rates, an expanding population, rising household wealth and strong housing finance. Growth in foreign investment in residential real estate is also encouraging more development.
The development industry is responding to these market conditions, and we are beginning to see projects that were once earmarked as commercial offices being reinvented as residential developments.
The strength of residential development has long been an indicator of the overall strength of the Australian economy. Any rise in residential housing activity contributes to state and federal government taxes.
It is important, however, to look beyond dry economics. At its heart, the residential development industry is addressing one of our most basic needs – the need for shelter from the storm – and is building the homes we need to ensure future generations of Australians can also enjoy living in the Lucky Country.