No, we don’t have “a housing supply crisis”

We have plenty of things we could call a crisis, but suggesting we have a housing supply crisis isn’t one of them. Here’s why.

First, recall that the immutable law of economics 101 is called “the law of supply AND demand.” The two work together. In periods of high demand, the law states that supply will normally respond with increases. Failure to do so will see prices rise. In periods of low demand, supply should also fall. Failure to do so will see prices fall. 

Looking at supply of housing commencements on a national basis, it’s hard to see a crisis. Sure, early 2023 figures are low, but the longer-term trend should provide some comfort.

What about the demand side? Our rate of population growth has come off the Covid-induced shut down and is headed for the moon. It’s both a very rapid increase (almost vertical) and at total levels that are themselves records. This is almost entirely the result of immigration policy. In other words, it’s deliberate. 

So combine very rapid increases in demand and record levels of overall demand that are well in excess of what the market can supply and guess what – prices rise, vacancies fall and we start calling this self-inflicted situation a crisis.

There’s another reason that “housing supply crisis” doesn’t ring true, and that’s because building houses is still – despite high profile builder collapses – relatively easy. It’s the land to put them on that we’ve made a herculean challenge. Sure, there’s no shortage of land in Australia but economists who don’t understand the delights of our planning systems would have little idea how hard it is to find suitably zoned land, either serviced or capable of being serviced, in or near locations where people seem to most want to live. This artificially induced supply constraint has been supported in the interests of combatting sprawl. Yet it is also having the effect of reducing the supply side response. Bringing land to market is now a minimum 5 year (in some cases longer) proposition for many larger urban markets. It’s also costly. 

(Ironically, when asked, many seem to respond in favour of sprawl – allowing more homes in new suburbs outside city centres was the most popular response to a range of options offered in this 2023 Resolve Political Monitor poll. The least popular? Allowing more apartments to be built within existing city areas):

So what I’d suggest is that we don’t really have a housing supply crisis, but instead we have a growth crisis. Not just a shortage of zoned land to build houses, but shortages of hospital beds, of schools, of transport infrastructure, even looming shortages of potable water and energy. 

How can pumping our population growth to record levels and doing so at warp speed, given what we know from bitter experience about our unresponsive regulatory environments, not end badly?