A recent study that examined 16 years of the housing market in Australia has concluded that housing is not a commodity that reacts normally to classic market force supply and demand.
An over-supply of housing in Sydney over this period did not produce cheaper prices, as expected. Instead, housing prices rose. In any case, with the increase in housing stock amounting to only 2% a year, any eventual fall in housing prices due to excess supply could be expected to happen very slowly, if at all.
The conclusion: building more houses won’t help affordability.
So . . . what will? It seems reduction in the cost of houses can only otherwise occur if there is a drop in demand for houses.
How can that occur? Masses fleeing the country? After some nuclear disaster, perhaps? Or maybe housing could become less fashionable as the young and daring adopt other successful methods of human nesting? Ideas welcome.
Wars can of course kill off populations, freeing up housing. But they must be wars that do not involve bombing of towns and cities. That would defeat the entire purpose, eliminating not only demand, but supply.
Of course, a bulge of the population might die off, reducing demand and freeing up housing: The Silver Tsunami, that long awaited artifact of the postwar baby boom!
Unfortunately, with modern longevity, it will take a significant time for the Silver Tsunamites to travel, one by one, into the great beyond.
So are there any short, or medium solutions to housing affordability? According to the study in question, apparently not. At least not those involving a free market of supply and demand. Read more in The Sydney Morning Herald: Why the government can’t supply its way to housing affordability
