Friday, October 17, 2014

West Australian Housing Shortage Myth

So often we are told by "PROPERTY SPRUIKERS" house prices will "HAVE" to go up because we are not building anywhere near enough housing to keep up with demand & because of their "PERCEIVED" shortage house prices will keep rising as people have to have somewhere to live.

Gullible "Mum & Dad" PROPERTY SPECULATORS swallow this MANTRA dished out by these "PROPERTY SPRUIKERS" & continue to pay top prices for WA  housing thinking that the shortages are real.

Gullible Mum & Dad property Speculators rely solely on strong "Capital Growth" to offset negative rental returns. They believe the necessary "Capital Growth" they need for their Speculative Property Investment to work are there because there is a shortage of housing in WA but the reality is in fact very different.

You only have to attend any Property Seminar to  hear Property Spruikers go on & on about how big a  shortage there is & therefore Capital Growths are guaranteed.

Below is a chart from that I borrowed to demonstrate that there is no shortage of property in WA & that in the last 30 years we have been building mor than enough to meet demand. In fact we built a SURPLUS of housing during this 30 year period.
(Note: I added the Grid lines to their chart to make it easier to follow)

The chart shows ABS Statistics on WA Housing Starts V's Population growth & the outcome might surprise some.

Further down I have broken down Population increase Vs Housing Completions  by years
(Note: my comparisons were with actual housing completion numbers & not just approval/planning numbers)

The years that I have compared (Every second year because that was easy to follow on the chart) shows that in only 4 out of the 17 years compared was there a shortfall in housing starts to population growth & one year where we built the exact amount of housing to match population growth. 

Now in the 17 years compared below taking away surplus from shortfall in WA we find that we built a 48,110 surplus of homes over & above what would be dictated by population growth. 

Now if you break it down to all the years over this period from the actual ABS Data you would find that in WA we have built 107,113 housing properties over & above demand based on population growth over this 30 year period.

So summing up if you look at the real ABS Data on WA Housing Builds Vs Population growth numbers you will find that in the last 30 years we have in fact built 107,113 homes over & above demand.  

So I wish Property Spruikers & Speculators the Best of Luck with your dreams of Capital Growths based on any shortages driving prices up.

Australian Census data has shown that on average over the last 30 years there has been 2.5 people per household.

In fact this number has been growing in recent years, because of the high cost of housing & rents, people have either been living at home with their parents longer or sharing longer with friends.Sharing or renting out a spare to friends has also become an economic necessity for many FHB just to enter the housing market.  But for the sake of this exercise lets use the long term average of 2.5 people per household.

With this in mind it would stand to reason that if the West Australian population increased by 25,000 people in a year we would need to build 10,000 new houses / units / apartments etc etc to accommodate this increased population.

1985 Population up 28,000 Homes built 18,000 enough to house 45,000 so we have a surplus of 6,800 Homes

1986 Population up 40,000 Homes built 16,000 enough to house 40,000 so we have a balanced supply & demand.

1988 Population up 45,000 Homes built 16,250 enough to house 40,625 so we have a shortfall of 1,750 Homes

1990 Population up 28,000 Homes built 20,000 enough to house 50,000 so we have a surplus of 8,800 Homes

1992 Population up 21,000 Homes built 16,000 enough to house 40,000 so we have a surplus of 7,600 Homes

1994 Population up 28,000 Homes built 23,000 enough to house 57,500 so we have a surplus of 11,800 Homes

1996 Population up 33,000 Homes built 15,000 enough to house 37,5000 so we have a surplus of 1,800 Homes

1998 Population up 29,000 Homes built 17,000 enough to house 42,500 so we have a surplus of 5,400 Homes

2000 Population up 27,000 Homes built 20,500 enough to house 51,250 so we have a surplus of 9,700 Homes

2002 Population up 21,000 Homes built 18,000 enough to house 45,000 so we have a surplus of 9,600 Homes

2004 Population up 28,000 Homes built 19,000 enough to house 47,5000 so we have a surplus of 7,800 Homes

2006 Population up 45,000 Homes built 23,000 enough to house 57,500 so we have a surplus of 5,000 Homes

2008 Population up 75,000 Homes built 22,000 enough to house 55,000 so we have a shortfall of 8,000 Homes

2010 Population up 55,000 Homes built 22,500 enough to house 56,250 so we have a surplus of 660 Homes

2012 Population up 89,000 Homes built 20,000 enough to house 50,000 so we have a shortage of 15,600 Homes

2013 Population up 65,000 Homes built 24,500 enough to house 61,250 so we have a shortage of 1,500 Homes

Oh & if you still think Perth Property will be OK or is Different this might come in handy 

Just a side note in many of the comments left here  I am often asked to explain where are all these empty houses if this was the case? .... 

Well lets look at the Department of Housing & Works they have 57.850 homes/units etc etc under their management yet at any given time there are over 8,000 of them vacant for various reasons...... 

Another area for vacant homes I discovered was the "Age Home" sector where there are thousands & thousands & thousands of elderly people living their last few years out with their family home vacant because they don't want to rent it out to strangers & have it trashed & besides whats the rush to sell after all they are going up in price more than their holding costs & if sold in a few years after Nanna passes away more money to share with those left behind & after all it would be too upsetting to sell Nannas home whilst she is alive & confirm to her she is never coming back.

Comments / Questions / Suggestions good or bad always welcome as usual.


  1. There are some shortcomings in your numbers:

    They don't account for replacement of old stock or 2nd homes (RBA estimates at 15% & 8% respectively).

    They don't account for the reduction in the number of people per household... e.g. WA population was circa 1.5m in 1985, you have to account for the extra homes these people require given the fall in occupancy rate. Take a sample of 15 people, 3 per home in 1985, they require 5 homes. 2014, 2.5 per home, they now need 6 homes.

  2. The underlying message though is that population growth is declining, whilst construction is increasing. Wouldn't be a problem if rents were increasing, but they aren't - vacancy rate is up and rents are flat/declining.

  3. I dont think it is wise to go back over 10 years when trying to analyse property or shares, as you are mixing cycles. A 10 year period will have both expansion and contraction so is more accurate.

    With that in mind, I dont think you have shown an oversupply, more a balanced supply (a 5,500 shortfall over a decade is near enough to break even).

    I also think you have overstated the impact of the aged. Most aged care facilities see the parents house sold to "buy" into the new facility. This is certainly my families experience with St Ives.

    Not a bad blog post, but certainly not an accurate one either

    1. Thank you for the feedback... see my reply below to somebody who also raised the issue of weather age care residents did have empty houses.

      Yes you could argue that I should only look back on the last 10 years however the last 10 years were abnormal with 2 mining booms & a GFC

      I can't see the harm in looking back to 1984 & there is a reason to do so.

      2003-2006 Perth house prices took off because of a spike in population due to the first WA mining boom and was supposed to have been caused a shortage of housing?

      Well the data showed that leading up to 2003 we had a massive oversupply based on housing starts vs population growth & the 2006 Census said we had 48,000 vacant houses

      The links below shows that at the 2011 Census in WA we had over 66,000 vacant houses up from 48,000 in the 2006 Census so the numbers grew ?

      USA / Ireland / Spain house prices soared due to so called shortages but now there are massive gluts? But their populations continued to grow.

      Food for thought perhaps

    2. Oh I see your point I guess you could be right.
      Great blog BTW even though I don't always agree with what you say you do have some interesting perspectives on the topic well worth a visit & read.

  4. Thousands and thousand of vacant homes empty from elderly moving into aged care.??

    I think you will find the elderly have to sell their homes to get the hefty entry fee into the aged care unless it is the absolute bottom rung.

    What are you sources for this comment ?

    1. There are many ways around having to sell the "Family Home" to enter an age care facility;

      But that is the formal age care system. My mother in law built a granny flat on the back of our place after her husband (my Father in law passed away) & lived in it for about 6 years before she herself passed away. She did not want to sell her home because she had so many memories of children & grand children growing up there & it was going up in value by more than it cost to hold (Maint-Ins-Rates etc) several of her fiends did the same thing ... this I suspect is repated hundreds if not thousands of times around WA.

      I know of people where the last remaining parent has passed away whilst still living in their family home without entering the age care system & they have retained the home without renting or selling it because they have an asset that had been going up in value above the holding cost. Yes they will be liable for a capital gains tax when it is sold but they don't need the rental income or the tax / pension implications linked with the rental income so tyhey leave it dormant & empty.

    2. I agree with the previous comment on here great Blog Site keep it up.
      Thanks for the links above amazing just how many people in retirement homes & age care homes that have empty properties just sitting there.

  5. It's off thread, but REIWA's listings are now up to 12,739 for Perth, which is a jump of 600 in the last week, after a couple of months of steady increases. We're still "around" the equilibrium point, but things seem to be switching at quite a rate. Do you have any views/information to add on this point?