Housing affordability is more than a supply-demand issue, say academics

by AB16 Mar 2018

A group of academics from Australia’s top universities believe the country’s housing affordability problem has become “so entrenched” because current policy conversations are rooted in flawed analysis.

The economic experts are from Curtin University, the University of New South Wales, and the University of Sydney. In a joint-commentary published on The Conversation, they said it is “too tempting” to frame the problem as a supply-and-demand issue.

Australia’s new housing supply per person is actually “very strong” by international standards – new units and apartments have been flowing job-rich metropolitan areas over the past decade.

“According to the cliché, this supply response should have cooled prices. Yet dwelling price inflation has surged even in metropolitan areas where new housing supply has exceeded population growth,” they added.

The academics shot down the theory of “filtering,” where older housing becomes more affordable as new home are built. Some claim that rental housing markets in the US stand as evidence for this. But the academics said there is no evidence in Australia to suggested new housing supply has filtered across the housing stock to expand affordable housing opportunities for low-income Australians, or that it will do so any time soon.

“If we are serious about delivering greater affordability for lower-income Australians, then policy needs to deliver housing supply directly to such households,” they said. Such a policy will include more affordable supply in the private rental sector, ideally through investment driven by large institutions such as super funds. “And for those who cannot afford to rent in this sector, investment in the community housing sector is needed.”

“[T]he market on its own will never solve Australia’s housing affordability problem. Expecting developers to keep building in order to reduce house prices is pure fantasy,” they added.

 

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