Strong demand and weak supply stoke auction markets – but there’s no quick-fix to supply shortage

The housing industry will continue to suffer from extensive supply issues and price pressures even if reforms are put into place immediately, property experts have warned.

The comments come as a debate is raging within the industry regarding vacancy rates, with some economists and analysts arguing the market has enough houses to sustain demand.

Harley Dale, economist for the Housing Industry Association, believes the market has a “massive problem” and that if reforms were even put into place within the next year, results would only be seen well into the next decade.

“We’ve been talking about supply problems for the better part of a decade, and it’s really only the last six or 12 months that there has been a widespread realisation that we really do have a problem on our hands.”

“There are probably three factors that need to be addressed quite urgently. First is how we fund provisional physical infrastructure, because there is a trend towards the user-pays model, whereby a large amount of that infrastructure is passed on to the home buyer. Secondly are the planning delays, and thirdly is ensuring we have a sufficient number of builders available.”

Dale argues that while these reforms should be made as quickly as possible, the market is so undersupplied that it would take several years to see significant changes. He also believes the notion the market is over-supplied is an ill-informed argument.

“We have some very sound bases we have used to complete a project which shows how many homes we need to build as opposed to the number of homes we are seeing being built, and we expect that shortage to continue well into the next 10 years.”

“If we put these reforms in place, it will be well into this decade before we get back on track. But that in itself I don’t think will spur more growth, I think it will be if reforms are made, it will spur on other developers and confidence, and then things will change because of that.”

David Airey, president of the Real Estate Institute of Australia, agrees there is a supply problem and reforms must be put in place immediately.

“In some markets the supply is very low, they are running out of stock and in the current market, established homes are in short supply in capital cities.”

“There are so many factors involved in bringing in new land for urban developments, the lead time in most places is about four years. If reforms were put in place today we would still see planning issues needed to be sold, but if we sped that up it would still take a good four-year period before we start to see effects.”

Meanwhile, the country recorded strong auction results over the weekend, indicating the likely pace of activity for the rest of the year. In Melbourne, the country’s second biggest market, an 83% clearance rate was recorded.

Real Estate Institute of Victoria Enzo Raimondo said in a statement a lack of supply will drive solid sales figures.

“After another weekend of strong demand and a clearance rate in excess of 80%, it appears that this is the natural state for residential auction market this year. As none of the fundamental drivers of the market appear to be changing it is likely to remain this way for a few months yet, that means more strong competition, high prices and lack of supply.”

“The release of the ABS dwelling commencement figures during the week will provide an indication if there will be an improvement in the medium-term.”

The city recorded 673 auctions, of which 561 were sold. The total value of sales reached $440.9 million, with about 2,000 auctions expected over the next two weekends.

In Sydney, the city recorded a clearance rate of 64% with 174 properties sold, with a total value of $143 million. Adelaide saw a 67% clearance rate from 30 sales valued at $14 million, while Brisbane recorded eight sales with a total value of $5 million, results in a clearance rate of 35%.