Mr Collyer at tax-reform lobby group Prosper Australia said there’s actually a surplus of more than 250,000 dwellings after 15 years of overbuilding, while Mr Keen argues the shortage estimate is swollen by inflated demand from handouts to property buyers of as much as $21,000. Banks in Australia have more than $1 trillion of housing loans outstanding, with the four-biggest lenders accounting for about 87 per cent of the total. The Australian Bankers’ Association said it doesn’t have a position on the so-called housing shortage myth and declined to comment. Australia has the most unaffordable homes in the English-speaking world, US consulting company Demographia said in January, with homes costing 6.1 times the average annual income. Slowing market The median price of apartments and houses in Australia’s capital cities has declined 3.4 per cent in 2011 - the most since 2009 - to $455,000 in July, according to RP Data. The average full-time workers’ annual earnings is about $70,860.

The ratio of household debt to disposable income in Australia is 155 per cent, higher than the 133 per cent Americans accumulated at the height of the subprime mortgage boom. Demand for housing credit in Australia has plunged to the slowest annual growth pace since central bank records begin in 1977. The most commonly cited data pointing to a dwelling shortage in Australia is the annual State of Supply report released by the government’s National Housing Supply Council. In its inaugural report in March 2009, the council broke down the estimated gap of 85,000 homes in the year to June 2008. It included 9000 dwellings needed to house people who were homeless, 35,000 properties for those staying with friends or relatives, 13,000 dwellings needed to house people living in caravan parks, and 26,000 needed to increase the rental vacancy rate to 3 per cent, and rounded that to the nearest 5000. None of us would bet our own house on the precision of our estimate of the extent of undersupply. That shortfall had swollen to 178,400 in the year to June 2009, according to the 2010 State of Supply report, which used a different methodology and didn’t specify which areas are short on dwellings. The 2011 report is yet to be published.

“We look at underlying demand, how many dwellings are needed to house our population, as opposed to market demand,” said Owen Donald, chairman of the Housing Supply Council. “There are submarkets that aren’t being supplied adequately and there may well be a surfeit in other submarkets. And in any market, there are going to be people who struggle to find a product they can afford.” Price paradox The Housing Industry Association, a Canberra-based builders’ group, said on September 1 the nation will have a shortage of about 500,900 homes by 2020 if it continues to build at the pace it has over the past 20 years. The greatest shortages will be in Brisbane, Queensland; Stirling, Western Australia; and on the Gold Coast, the group said. Recent statistics show that projection is doing little to buoy prices or lower delinquency rates in those areas. Prices in Brisbane fell 6.6 per cent in July from a year ago, the biggest decline among Australia’s capital cities, according to RP Data figures. House prices in the Gold Coast dropped 5.4 per cent and apartment prices plunged 7.7 per cent in the year to March 2011, RP Data said in a July report.

Stirling, north of Perth, was among the 100 worst postcodes in Australia with mortgage repayments more than 30 days late as of March 31, according to Fitch Ratings. Across the nation, home loans more than 30 days overdue rose to a record 1.8 per cent of residential mortgage-backed securities in the first quarter, while the number of riskier “low-doc” loans more than 30 days late climbed to a record 6.74 per cent, Fitch said in May. Banks point to undersupply Westpac in an October report on the nation’s housing market estimated a shortage close to 200,000. Commonwealth Bank and ANZ have also published reports in the past year that attribute the run-up in prices over the past decade in part to an undersupply of housing.



Reserve Bank governor Glenn Stevens is among those flummoxed as to why homes are so pricey in a nation almost as big as the US, with just 22.7 million people. “How is it that a country of our size - we are not short of land - how is it that we cannot add to the dwelling stock for the marginal new entrant more cheaply than we seem to be able to do,” Mr Stevens told a parliamentary panel in Melbourne late last month. The challenge to the shortage numbers echoes warnings before the US housing crash from doomsayers including New York University Professor Nouriel Roubini, “The Black Swan” author Nassim Taleb, and Peter Schiff, chief executive officer of Euro Pacific Capital.

US home prices soared from 2000 to mid-2006, propelled by banks and other lenders that extended credit to homebuyers who later defaulted, leading to a collapse in the subprime mortgage market. The nation’s economic leaders during the boom times downplayed the notion that a housing price bubble left the country vulnerable. Overall, while local economies may experience significant speculative price imbalances, a national severe price distortion seems most unlikely in the United States, given its size and diversity,” then-Federal Reserve chairman Alan Greenspan said in a speech in October 2004. US home prices have slumped 32 per cent since their July 2006 peak, according to the Standard & Poor’s/Case-Shiller index, and the proportion of people who own their homes has fallen to 66 per cent, from a peak of 69 per cent in 2004. Australia maintained its homeownership rate of the last four decades of about 70 per cent throughout the global financial crisis, government statistics show. Slowdown Recent Australian indicators have pointed to a slowdown in 2011, with the unemployment rate rising. Australia faces as many as 100,000 job losses and rising unemployment that will force the central bank to cut interest rates by November, Bank of America Merrill Lynch strategists said last month.

TV show The Block highlighted the housing market’s recent malaise. The series followed four couples as they renovated homes to attract the highest price at auction over set targets. More than 3 million watched the finale on August 21 as just one of the four homes sold, for $855,000, versus its $840,000 asking price. Australia had a total of 377,315 homes listed for sale online in July, a 22 per cent jump from a year earlier, according to SQM Research. The percentage of successful sales at auction in the week ended August 21 was 50 per cent, down from 60 per cent a year earlier and 78 per cent at the same time in 2009, according to RP Data. Bubble belief Developers including Australand Property Group, Stockland and Meriton, and developer-backed Urban Taskforce Australia, are among groups arguing an undersupply of homes will underpin prices. Urban Taskforce Chief Executive Officer Aaron Gadiel said most Australians live in a small number of coastal cities, exacerbating the shortage and driving prices higher. Prosper Australia’s Collyer says there’s actually an excess of 256,324 homes, equivalent to double the housing stock in the nation’s capital, Canberra. That’s because Australia has built one new dwelling for each 2.32 new people for the past 15 years, Mr Collyer said, more than is needed for a nation with an average 2.66 people per home.

“When residential property prices blow into a bubble, the tragic error often made is in attributing price rises to housing shortages,” Mr Collyer said. “The US experience shows this conviction is shattered as soon as price declines begin.” While an increase in the number of people per dwelling would reduce the Housing Supply Council’s assumed shortfall, the increase itself could in part be attributed to a lack of adequate supply, the Housing Supply Council’s Donald said. Loading “Our methodology is logically sound,” Mr Donald said. “But none of us would bet our own house on the precision of our estimate of the extent of undersupply.” Bloomberg