Most new housing stock in Sydney and Perth is in the middle to high price range and fails to improve housing affordability by “trickling down” to lower prices for those on low incomes.

That is the conclusion of new research by the Australian Housing and Urban Research Institute and the Bankwest Curtin Economics Centre, released on Thursday, which also found increases in housing stock have not kept up with population growth in the two cities.

The report, Housing Supply Responsiveness in Australia, found that price rises were not sufficient to spur an increase in housing stock to keep up with demand.

A 1% increase in real house prices would boost new housing construction by just 4.7%, compared with as much as 15% in the US, according to the research. Such an increase would only increase total housing stock by 0.05 to 0.09%. An increase in unit prices of 1% increased new supply by even less, 3.9%.

While growth in national housing stock has kept pace with population growth, that was not the case in Perth and especially Sydney, where supply-side barriers were acute.

According to statistics released in April, Sydney property prices have increased by almost 20% in just 12 months, putting the city at the front of a nationwide trend that has seen dwelling values increase by 12.9% on average.

The AHURI and BCEC research found that most growth in housing supply was at the mid to high price range and people that bought those properties were not moving from established housing stock to free up dwellings with lower prices and rents.

Less than 5% of approvals for new homes were in the bottom 20% of the house and unit real price distribution in 2005-06, and this remained the case almost a decade later in 2013–14.

The report found that more than 50% of new units were built in the highest job density areas in Australia, a finding likely to mean shorter commute times for apartment-dwellers.

The lead author, the deputy director of BCEC, Rachel Ong, said: “We’d normally expect to see a trickle-down effect, where building higher-value homes leads to the opening up of lower-value homes for those on lower incomes.

“Our research indicates this isn’t the case, meaning an increase in housing supply is not leading to better housing affordability.”



Ong said this showed government’s needed to do more, such as improving financial incentives for developers to build at the lower end of the housing market.

The 2017 budget included some limited measures for housing affordability including tax breaks to invest in affordable housing and allowing first home buyers to use the tax benefits of superannuation to save for a deposit.

Economists and tax experts have raised doubts about the package, saying it will do little to reduce house price pressures, while Labor has continued calls to overhaul negative gearing and capital gains tax concessions.

The report noted “housing tax preferences and asset test concessions” – such as negative gearing and the capital gains tax concession – “increase the demand for housing by encouraging the accumulation of savings in housing wealth”.

These helped fuel house prices by adding to demand making “supply-side reform even more important” if governments are unwilling to curb the concessions. But the report said that planning reform should move beyond “the simplistic interpretation, which assumes that the mere presence of a control is a barrier to supply”.

Its modelling suggested that planning measures are “unlikely to be the key factor influencing housing supply”. The only exceptions were planning policies that had a direct impact on developer profits such as density, height and possibly parking restrictions.