Preparing for a ‘Big Australia’

Thursday, March 17th, 2016
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The term “big Australia” has been bandied over the past few years as the country’s population grows to unprecedented levels.

Australia’s population is estimated to have broken the 24 million threshold last month. Projections indicate that the nation’s population could rise to over 40 million by the year 2050.

Is that a big number? It is to some people, but it is quite a small number to others. The ‘right’ population is a subjective number – as it should be, because everybody has a right to express their own opinion. Different individuals, households, businesses or groups will understandably have different views on the subject.

For the record, and we outline this situation in HIA research, population projections don’t have a history of being especially accurate. A nice round number of 40 million is just one of a multitude of possible outcomes.

Regardless of the size the population reaches, we need a very different policy approach to housing our growing and ageing population in the decades to come. We need to create a policy environment where dwellings of all shapes and sizes are available in a variety of locations to successfully and affordably house Australian residents of all sizes and age groups.

Right now, we do not have a national policy focus on the issue; yet without it we will fail as a nation to provide an economic necessity – shelter.

I recently had the privilege of attending a conference of the International Housing Association, whose secretariat is the National Association of Home Builders (NAHB) in the United States. It struck me that of all the developed and developing counties present – and there were many – Australia was the only country without federal government representation for housing. Not just public and social housing assistance – which seems to be how we mistakenly perceive the sole way in which any (broken) federal system should work – but the crucial question of housing supply.

Get housing supply wrong and the whole nation suffers in terms of slower economic growth, lost efficiency and productivity growth, lower standards of living, higher social dislocation and unrest (therefore adding to public cost from the federal government all the way down) and much greater pressure on federal and state government health budgets.

The purpose of HIA’s unique Housing Australia’s Future research – first launched in late 2014 and updated last month – is to draw attention to the policy imperative of housing Australia’s current and future residents and the persistent and significant increases in the real cost of housing over time. The latter outcome indicates that supply policies have not been fully adequate in delivering the requisite output of new housing stock over time. They need to in the future.

This persistent policy failure underlies the core framework of Housing Australia’s Future – to assess possible home building requirements over the years out to 2050, both nationally and in each state and territory. There are an enormous range of possible outcomes, but it is possible to provide a narrower range as a starting point of guidance, and that’s what the report does. The model underlying the report contains a considerably broader set of possible outcomes.

Ultimately, Australia’s future housing requirements will be determined by the rate of population growth and the pace at which living standards improve. Depending on a range of scenarios incorporated within the formal Housing Australia’s Future report, the annual home building requirement ranges between 134,237 and 253,239 dwellings. Mid-range growth in population and real incomes would require 187,659 dwellings to be built on average each year over the coming decades.

It is estimated that during 2015, new home building reached a record level of 220,000 dwelling commencements, an increase of some 11 per cent on the previous year’s already exceptional output. The high level of output came despite significant obstacles in the form of high taxation levels on new housing, planning delays, and inadequate mechanisms for the financing and delivery of housing infrastructure. Without these constraints, an even greater peak would have been scaled, but that is not to take away at all from what was still an awesome achievement for the industry, the economy and the population.

The current cyclical peak of around 220,000 new dwelling commencements makes a mid-range scenario of an average 188,000 dwellings per annum look almost pedestrian, though it is anything but. The challenge of achieving this 188,000 annual milestone over the next 40 years – which is only one of a great many possible scenarios, remember – is underlined by the fact that this threshold has been reached only on three occasions over the past 40 years. Consistently delivering this level of housing supply would require significant reconfiguration of policy settings around infrastructure funding, excessive charges, planning, land supply, and the imposition of inefficient taxes such as stamp duty.

Maybe the scenario that comes to pass will reflect more than 188,000 dwellings, and maybe it will be fewer. Either way, Australia will need a dynamic policy environment and framework around housing, within which federal government involvement will be crucial to success. If along the way we can avoid reference to that less than useful term ‘big Australia,’ then all the better!

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