Much has been made of the rapid population growth in Australia’s capital cities, but is there enough housing stock to cater for the projected increases in urban residents?

Not according to RP Data senior research analyst Cameron Kusher who has warned that population growth has exceeded dwelling approvals in recent times and, as a result, there is an undersupply of stock.

Using recently released ABS data, Kusher found that, over the year to June 2013, the overall capital city population increased by 313,387 persons yet just 114,825 dwellings were approved for construction.

After the figures were adjusted for average household size plus the assumption there should be 15% more dwelling approvals to replace demolitions, he determined there should have been 137,005 dwellings approved for construction.

This finding meant that there was, in fact, a shortfall of 22,180 capital city dwelling approvals.

Kusher said it was no coincidence that the disconnect between the level of population growth and dwelling construction approvals had been greatest within the country’s largest capital cities.

The market was now seeing an encouraging rise in dwelling approvals, on the back of escalating housing demand and rising home values, he continued.

However, this would have to continue for many years to make up for the insufficient supply response of the last decade.

In Sydney and Melbourne, there was one home approved for every 2.72 and 2.48 new residents respectively. This indicated a level of supply closer to equilibrium with demand over the most recent year. 

But new supply remained insufficient in Brisbane and Perth where 1 new home was approved for every 3.26 new residents in Brisbane and 3.45 new residents in Perth.

Kusher said that the issue also meant it was important to consider the type of product that was being developed for market.

New housing is generally either new houses on city outskirts or medium to high density product in inner city areas but, in capital cities, there is a move away from greenfield housing development to infill higher density development.

Over the year to June 2013, 49.7% of all dwelling approvals were for units (which includes townhouses and semi-detached homes). 

In that period, there were more units than houses approved for construction in Sydney (66.1%), Melbourne (52.7%), Brisbane (50.1%), Darwin (64.5%) and Canberra (54.9%). 

However, units typically have fewer bedrooms and so are likely to have a smaller average household size than a detached house would, Kusher said.

“As a result, it is likely that as the delivery of units increases there actually needs to be a greater number of units constructed in order to cater for population growth than there would have been if houses were exclusively built.”

There were many solutions to the growing undersupply problem, he added.

For example: New developments could be approved faster, developable land in both the inner city and within greenfield areas could be increased and the costs of new development to the developer could be reduced or incentivised.

“It is clear that - particularly within the major capital cities - the current conditions are not working and finding a way to increase the supply of new dwellings is imperative.”