By MoneyMorning.com.au
Yesterday, the National Housing Supply Council released the latest State of Supply report. It will come as no surprise to learn, “Despite weaker market conditions, the housing shortage continues to widen.”
Yeesh! Not that old chestnut.
We won’t waste too much of your time on the latest report. Because it’s just not worth the ink. We’ll simply make these points…
One of the silliest parts of the previous State of Supply reports was the inclusion of homeless people and caravan dwellers as proof of a housing shortage. As we saw it, it was one of the most insensitive and insulting things we’ve ever seen.
Any shrink worth their salt will tell you homelessness isn’t caused by high house prices. It’s caused by mental problems, family breakdowns and financial stress (which may or may not be housing related).
You may remember this table included in the 2008 State of Supply report:
Note that 2,000 of the supposed housing shortage is simply down to… rounding the number up “to the nearest 5,000″! And 26,000 was due to increasing the rental vacancy rate.
In other words, almost one-third of the number doesn’t even represent a housing shortage. It’s just number-play. It’s like saying a supermarket has an undersupply of milk because it normally has 10 bottles left at the end of each day, but now it only has eight left at the end of each day.
This table doesn’t appear in the latest report. We wonder why? Surely, the NHSC isn’t trying to hide the source of its housing shortage numbers…
Another point is the estimated housing shortage for 2009 has actually fallen by nearly 20,000 to 158,500. Why? Because the NHSC now includes previously uncounted “conversions”.
A warehouse converting to a block of flats is an example.
But that still doesn’t stop the NHSC saying the housing shortage has worsened. Because thanks to all the unbuilt homes (because there’s no demand for them is our bet) the current housing shortage stands at 186,800.
And by 2030, the housing shortage will go up to… 640,200.
Anyway, it just makes us wonder how reliable the rest of the numbers are… and how much we can rely on the NHSC’s projections.
Thankfully, we didn’t have to wonder long…
Buried on page 106 of the report was the following note:
“However, it is important to note that these cumulative estimates do not include the extent to which underlying demand and supply were out of balance in June 2001.”
Are you kidding me?!
What does that mean? This…
The NHSC set 2001 as the base year for computing the housing shortage.
Regardless of the actual supply and demand balance, the NHSC decided that at June 2001 the housing market was in perfect balance… no housing shortage and no surplus.
Put another way, even if there was a 100,000 housing surplus in 2001, the NHSC didn’t reflect this possibility in the numbers. According to them, the balance was zero.
Bottom line: if the NHSC’s balance of housing assumption in 2001 is wrong, then everything else is wrong… and the report isn’t worth the paper it’s printed on.
Of course, that won’t concern the mainstream (except Bloomberg News who asked your editor to comment yesterday). They’ll see the headline number that claims the housing shortage has “ballooned” and will get worse.
They’ll talk up the housing shortage and say high house prices are justified… and convince youngsters to buy now before it’s too late.
We’ve applied the Bull$#!t Test to the State of Supply report… and the speculation that homes in the Aussie housing market are somehow of superior quality – and both have failed to convince.
Cheers.
Kris
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