Housing Industry Association says housing starts to fall by 4% in 2010-11, shortage and affordability to get worse

The national housing shortage is becoming worse and affordability will decline unless government policies are reformed, the Housing Industry Association has warned in a new report.

SQM Research founder Louis Christopher says while the immediate impact on housing is not yet evident, the problem with a lack of supply is that prices will spike when the Reserve Bank starts cutting interest rates.

“Housing starts are a function of demand. Builders don’t go out and build unless they’ve got demand to start with. The overall market has been slowing up, so I don’t think there’s an immediate impact on housing prices.”

“But when demand does suddenly pick up again, what it means is that you have this fixed supply situation and prices are likely to shift upwards quite quickly when that demand picks up again.”

The new HIA National Outlook report claims, once again, that the Australian housing shortage is getting worse. It claims that housing starts are forecast to fall by 4% during 2010-11 to 159,393, despite starts increasing by 26% during 2009-10 due to federal stimulus.

“The fact remains we are not building enough homes to match demand, and going forward our national housing shortage is expected to worsen,” HIA chief economist Harley Dale said in a statement.

“Renewed weakness in new home starts in 2011 would mean there were only two years in 10 when starts have risen. That is an appalling result, which highlights the challenge Australia faces in addressing a large and growing housing shortage that will place considerable further pressure on rental markets.”

The report also claims that housing starts are forecast to increase by 24% during 2010 to 171,442, but will drop by 9.5% during 2011 to 155,155. Dale claims that while higher interest rates will dampen activity, federal government assistance is needed if the problem is going to get any better.

Specifically, he says that regulatory procedures need to be eased so developers have the ability to create new blocks of land faster than they currently are able to.

“However, if we want to address Australia’s housing shortage then the Federal Government needs to lead from the front on a range of policy areas including further investment in skills and training, reform of the tax system, an end to excessive regulation, increased land supply, reduced planning delays, and ensuring greater competition in the banking sector so there’s adequate finance for development,” he said.

“The breadth of policy challenges ahead highlights the disappointing fact that Australia does not have a Federal ministry dedicated to housing.”

Christopher agrees. He says local councils need to give developers easier access to land and spark initiatives to reduce turnaround times.

“In my opinion, I think we need to see state governments and councils providing initiatives for developers to build in the middle rings of cities, because that’s where the shortages are – particularly for Sydney.”

But Christopher also says the issue isn’t necessarily a national undersupply. He argues some cities, such as Brisbane, actually have an oversupply and developers need to instead target areas “smarter” than just thinking the issue is a national one.

“This is why the issue of supply needs to be tactical as well. It’s no good trying to push a macro-style incentive when what we need to do is build smarter, not just everywhere.”

“The RBA is right in that if we have a massive income boost through terms of trade, which could happen at any point, then we will see prices increase. We definitely need to find solutions which reduce the cost of building homes for developers.”