Housing supply deficit widens

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Residential property prices are set to rise even higher as supply continues to fall to intractable levels.

The National Housing Supply Council (NHSC) found that the shortfall of new housing across Australia jumped by 178,400 from 78,800 more than a year ago. The NHSC had only expected a 23,000 supply shortage over the same period.

"The extent of undersupply in the housing market has worsened significantly over the past year. And if action isn't taken over coming years, then by 2014 Australia could face a housing supply gap of over 300,000 dwellings," said Craig James, CommSec chief economist.

"The new projections should sound a significant wake-up call to state and territory governments. Clearly it's now up to state and territory governments to practically respond to the findings in the latest report. The bottom-line is that the Reserve Bank can't solve the housing crisis by lifting interest rates. This only would serve to temporarily depress demand and reduce incentives for investors and developers to increase supply."

Paul Braddick, head of property and financial system research at ANZ, added that because Sydney is by far the most significantly undersupplied, it will see prices continue to rise despite worsening levels of affordability.

"The fact of that of the national undersupply, half of it is in Sydney, it's going to take a long time to turn this around. We expect housing shortage to get worse over the next five years and it's an underpinning factor for price growth, which is going to be pretty strong," said Braddick.

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