BOB BIRRELL and DAVID McCLOSKEY. Sydney and Melbourne’s housing affordability crisis: no end in sight.

Apr 4, 2017

Our projections show that, on these demographic assumptions, new migrants will add about 64 per cent to the need for extra dwellings in Sydney over the decade 2012 to 2022 and 54 per cent in Melbourne.  

The purpose of this report is to document the seriousness of the housing affordability crisis in Sydney and Melbourne and to show that the assumptions undergirding Commonwealth and State Government policies to deal with it are not working and cannot work.

The urgency of a rethink on these policies was revealed during the debate in late February 2016 on the Labor opposition’s proposals to abolish negative gearing concessions on established residential property from 2017. The Prime Minister, Malcolm Turnbull, declared, to a chorus from the property industry, that this would reduce the value of housing.

The PM’s stance reveals a monumental insensitivity to the social catastrophe flowing from record high housing prices for the next generation of home seekers in Sydney and Melbourne. Prices have to drop if the consequences are to be dealt with. They include a leap in the proportion of young households who have to rent, with Sydney leading the way. By 2011, 42 per cent of partnered persons aged 30-34 in Sydney were renting as were 36 per cent of those in Melbourne.

Two sets of policies are at issue. The first set is the macro-economic settings of the post 2013 Coalition Government and second set is the assumptions guiding the NSW and Victorian government planners responsible for their respective metropolitan housing policies.

When the Coalition came to power in 2013 it faced, in its words, an ‘extraordinary period of transition with investment in resources projects shifting from being the key driver of growth towards becoming a significant detractor from growth’.1 Its interim solution was to promote the housing construction industry. The May 2014 budget projected dwelling investment would increase by 7.5 per cent in 2014-15 and 5.5 per cent in 2015-16.2

The strategy to achieve this boost was to leave intact the pre-existing incentives to housing purchases for owner occupiers and investors. These included the longstanding negative gearing and capital gains concessions. The Government also, in effect, provided a guarantee of continued growth in housing demand. It did so by stating that it would maintain net overseas migration (NOM) at around 240,000 a year. This was in a context where it was well known in the property industry that about half of all new migrants were locating in Sydney and Melbourne.

Our projections show that, on these demographic assumptions, new migrants will add about 64 per cent to the need for extra dwellings in Sydney over the decade 2012 to 2022 and 54 per cent in Melbourne.

For its part, the Reserve Bank, which has likewise fretted over the downturn in resource investment, sharply lowered interest rates.

These policy settings meant that the Commonwealth Government was making the gigantic assumption that it could solve the already serious housing price situation in Sydney and Melbourne at the same time as adding a very large extra source of housing demand from migration. 1 Commonwealth Government, Budget 2014-15, Budget Statement 2, Outlook for the Domestic Economy, p. 1 2 Ibid., p. 3 v The results are the opposite of what was promised. Over the last few years there has been a speculative boom in housing prices in Sydney and Melbourne that has worsened the affordability crisis. Most of the huge increase in investor purchases has been in established houses. Investors are in effect transforming potential owner occupiers into renters.

To the extent the Commonwealth Government’s policies have promoted dwelling construction it has mainly been in the form of high-rise apartments.

The blame for this latter outcome is partly attributable to the NSW and Victorian planners and the housing commentators that have promoted their strategies. The two governments and their planners suffer from the same hubris as the Commonwealth Government. They have claimed that their policies will fill the backlog in the supply of dwellings already obvious by 2013 and, in addition, provide for the needs of the extra migrant households.

Their strategy has been to open up opportunities for urban renewal in inner city areas and for infill (low rise apartments and units) in established suburbia. To this end the planners have rezoned vast areas of the inner cities of Sydney and Melbourne for high-rise apartments and diminished the opportunities for municipal councils and resident action groups to oppose infill development.

These planning policies are based on the assumption that most of the demand for new housing in Sydney and Melbourne will come from one- and two-person households who will welcome the new opportunities to locate in inner city apartments or infill in established suburbia.

These assumptions are wrong. Most of the growth in the need for extra dwellings in Sydney and Melbourne will come from young resident households entering the family formation phase of their lives and from new migrant households who for the most part will also be entering the same phase. Their priority is family friendly two or three bedroom dwellings with some protected external space.

There will be an increase in one- and two-person households. But the planners have not understood that this is largely a consequence of population ageing in Sydney and Melbourne as the householders born after 1950 replace the much smaller numbers born before 1950. The householders aged over 50 currently occupy around half the existing detached housing in Sydney and Melbourne. Though not new households, there will be many more of them because of the ageing effect. This means that the existing shortage of such housing will get worse.

Our projections show that 100,000 of the extra 142,060 separate houses needed in Sydney over the decade 2012-2022, and 135,000 of the extra 231,340 needed in Melbourne, will be attributable to this ageing effect.

By 2016 housing prices in Sydney and Melbourne were amongst the most expensive in the developed world. Prospective home buyers have been forced to search ever further outwards for affordable housing. They are not finding it anywhere in Sydney, even on new fringe estates. They can find such housing on the fringe of Melbourne, but have to move 30 to 50 kilometres from the CBD to procure it. The consequence is a sharp spike in the number of renters.

There are increasing numbers of high-rise apartments available in both cities. But these are totally unsuitable for those looking for family friendly housing.

The great hope of the planners was that infill would provide the solution. It has not happened. This is not because of municipal council or resident group obstruction. The main reason, particularly in Sydney, is that the housing price bubble has pushed up the price of detached housing sites such that developers cannot produce affordable family friendly units. Much of infill being built is large and vi expensive. It is aimed at trophy hunting owner occupiers and overseas investors. Nor is it suitable for older households considering downsizing.

Report authors   This work was commenced in 2014. It was conducted by Dr Bob Birrell, the Founding Director of the Centre for Population and Urban Research at Monash University (CPUR); David McCloskey, then concurrently a partner in Deloitte Analytics and an Adjunct Senior Research Fellow in the CPUR, now Founding Director, Sensing Value Pty Ltd; and Virginia Rapson, the data analyst on the project. The work has since been completed under the auspices of The Australian Population Research Institute (TAPRI), an independent, non-profit research organisation of which Bob Birrell is the head. Report No. 1 on the housing affordability crisis is available at .

This article was first published by The Australian Population Research Institute in March 2016. 

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