A cyclical shortage
The Reserve Bank's Sarah Hunter delivered a speech in Hobart this week on the housing market cycle and fundamentals.
These days we only seem to get around 2.5 persons per dwelling, and with population growth running at record high levels - both in percentage and absolute terms - it's going to be a struggle for construction to keep up in the immediate future.
Furthermore, the share of employed persons working from home has increased from around 31 per cent in 2019 to above 35 per cent today, so people are often wanting more space, including home offices.
While housing supply will respond eventually, costs and interest rates are too high, and prices will probably need to rise significantly for suburban medium-density projects to become feasible again.
Construction insolvencies are running at decade highs at more than 2,300 over the past year, and demand is currently running well ahead of supply.
As such, rental vacancy rates are at record lows, and rents are climbing fast.
The speech went on to look at why supply hasn't responded.
I'm admittedly not a huge fan on looking at building approvals per capita - it's the old stock versus flow argument - but any way you dice it up building approvals have plunged as the cost of construction has soared.
Since 2019, the cost of a new dwelling has increased more quickly than overall inflation, up by about 40 per cent on this measure (it's more for unit developments, in my experience).
The Reserve Bank is keen to point out that interest rates aren't the main factor, but nevertheless they are an input.
Supply will respond eventually, but it won't be a quick fix, with so many projects not viable.
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