Wednesday, July 11, 2012

The real housing supply problem - part 1

As noted here recently, the National Housing Supply Council has published its report 'Housing Supply and Affordability – Key Indicators, 2012', with the headline claim that Australia has a housing shortfall of 228 000 dwellings (calculated on the basis of dwellings built relative to estimated household formation.)

The NHSC did so on 14 June; a week later, the 2011 Census came out and revealed that, actually, there were about 900 000 fewer households than estimated, thus kicking the legs out from under the shortfall claim.

The NHSC has said it will go back to the ABS (the source of both the estimate and the Census data) and get to the bottom of the 'gigantic' discrepancy.

As we said previously, the calculation of the shortfall was always dubious, because it assumed that households would form and demand housing without regard to the affordability of housing, amongst other things. It ignored, therefore, what we might call the 'Packed to the Rafters effect': that some people, faced with rising housing costs or uncertainty about incomes, may stay with parents or friends, or move back in with them, rather than form households of their own.

But the NHSC's report is valuable – and remains so – for another reason: that is, what it says about affordable rental housing. And this is where the real housing supply problem is.

The headline figure here is that on the latest available figures, 60 per cent of lower-income households renting privately are paying more than 30 per cent of their incomes in rent, and 25 per cent are paying more than 50 per cent.

A quick explanation of terms:
  • 'lower-income households' means those in the bottom 40 per cent by equivalised disposable income (and 'equivalised' means adjusted for different household sizes). That's a lot of households. (If you're interested, the NHSC also gives figures for the bottom 50 per cent.)
  • 'paying more than 30 per cent of their income' is also known as 'housing stress'. Once a lower-income household goes past the 30 per cent threshold, there's a good chance they are going without something else that's reasonably regarded as a necessity: ie skipping meals occasionally, no visits to the dentist, no school excursions, etc. The 30 per cent rule of thumb is actually pretty conservative (an older rule of thumb was that anything more than one-sixth of a worker's pay (ie one day from the old working week) was getting unaffordable).
  • 'paying more than 50 per cent' is also known as 'housing crisis'. Lower income households paying this much are going without so many other things that typically they won't be able to keep it up.
  • 'latest available figures' means from the ABS's 2009-10 Survey of Income and Housing.
This is a worse result than the previous year (2007-08), when 57 per cent of lower-income private renter households were in housing stress, and 15 per cent were in housing crisis.

And it's worse in New South Wales, where 62 per cent of lower-income private renter households are in housing stress (curiously, this is down from 65 per cent the previous year), and 28 per cent are in housing crisis (up from 25 per cent).

As proportions from the survey, these figures are not affected by the overestimate of household formation (but note: the NHSC does also give absolute numbers, which would be affected by the overestimate).

The NHSC presents this affordability problem as a supply problem in the section headed 'Affordable and available rental properties' - and we'll discuss this in part 2.



1 comment:

  1. It's sad that we can't have a true figure, one we can rely on as being correct, or very close to being correct. It makes it hard for economists to help those who are in a housing crisis. If the public isn't even sure if the figures are correct, what hope can we have in the people in power who help those in need?

    This is a very serious matter and I hope the NHSC can account for this, as they say: "gigantic discrepancy".


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