Spare rooms and the housing shortage

A couple of days ago we discussed the Queensland State Government's proposal that public housing tenants with spare bedrooms should take in a needy person (or family) from the social housing waiting list... to which we replied, well, owner-occupiers 'under-utilise' to a far greater extent – there's more than 8 million spare bedrooms in the nation's owner-occupied houses – so why not ask them?

Here, by the way, are the data on rates of 'under-utilisation', presented a little differently (the axes are flipped) for clearer comparisons:

Now, by coincidence, the National Housing Supply Council has just released its report for 2012. The lead findings: that Australia has an estimated housing shortage of 228 000 dwellings, which is 28 000 deeper than the shortage estimated as at June 2010, and that the shortage is projected to deepen further to 370 000 dwellings by 2016, 492 000 by 2021 and 663 000 by 2031.

It's a peculiar sort of housing shortage, you might think, when there are 8 million spare bedrooms in the homes of owner-occupiers.

And it is a peculiar sort of shortage when you consider how the NHSC arrives at its figures.

For the NHSC, the shortage is the difference between the change in supply of dwellings (ie the number of dwellings added to the housing stock) and the change in underlying demand for dwellings. By change in 'underlying demand', the NHSC means changes in the size of the population, and how it is divided up into households. When it considers these changes, and projects them into the future, the NHSC assumes that they will occur on the same pattern of change as measured between 2001 and 2006.  

And that's all it assumes. That is to say, the NHSC assumes the population will keep on dividing up into households, and these households keep demanding to be housed, as they did at 2006, in the heady days before the GFC, when folks didn't worry about debt and thought that owning a house was a way of getting rich... and they'll do it without regard to how affordable it is in terms of prices and incomes now, and without regard to a great many other things too.

In the NHSC's words (from its 2011 report):

The Council’s projections include underlying housing demand for occupied dwellings (by dwelling structure and tenure type) that would result from changing household composition over time if the existing patterns of housing consumption (‘demand propensities’) of different household types continued over the period of the projections.

The model assumes that the dwelling and tenure preferences of each cohort of the population (by age, household type and location) over the next 20 years will be the same as that cohort’s proportional use of each dwelling and tenure type in 2006.

The resulting projections do not take into account changes in housing preferences and consumption patterns driven by non-demographic factors such as housing prices relative to income, the development of new types and styles of housing, increased transport congestion and resulting increased journey times to work, increased or reduced working hours, fuel prices, changing fashions, government policy and performance with regard to housing and land development, policy and behavioural responses to climate change and so on. Many of these phenomena have changed significantly in the past and are likely to change further in future.

The Council’s housing type and tenure type projections simply provide, therefore, an answer to the question ‘What would be the underlying demand for housing types and tenures if only the size and structure of the population had changed since 2006?’. (Emphasis added.)

By not taking into account 'house prices relative to income' – that is, affordability – and all those other factors, this is a very big and wobbly 'if'.

To be fair to the authors of the NHSC's report, they do make their assumption explicit  in the report – but it does place a big qualification over the claim of a shortage, and its projected deepening into the future. It's a shortage only if people keep forming new households as if its 2006, without any regard to the affordability of housing, and without regard to a very wide range of other factors.

In the real world, of course, people do consider the affordability of housing when they decide whether to leave the parental home, or the share house, and form a household of their own, and demand some housing – owner-occupied or rented – of their own. And some of those already out there in the housing market might look again at its affordability, and decide to withdraw, back to the spare rooms of parents and friends.

Which brings us back to those 8 million-plus spare rooms. The Australian housing stock has quite a bit of capacity to accommodate persons who change their 'housing preferences and consumption patterns', including in response to apprehensions affordability – whether that's the feeling that prices are too high, or incomes are too low or insecure. And while not each and every person always has access to a spare room outside the market, the Australian population generally has quite a bit of scope to moderate its demand for housing, and hence the prices it will pay.

So claims about a housing 'shortage' of a particular size must be treated with caution. What is much clearer, however, is that we have a housing supply problem, if by that we mean a problem in getting adequate, affordable housing to those who need it. More on that in our next post.