Busting the myth of the housing shortage

by Chris Lang on July 25, 2011

Man carrying a house

Here’s a shocking revelation: housing shortage may only exist in our imagination. In reality there are over 46,000 empty homes, purchased by property speculators, excluded from the rental vacancy rate calculations. If we were to include these homes, the real vacancy rates would be much higher.

According to the latest report released by Earthsharing Australia, the Speculative Vacancy Rate for Melbourne 2011 is 4.94% (more than twice the REIV’s Rental Vacancy rate of 1.7%)

What does this mean?

First, that recent increases in house prices have been driven by speculation, not a housing shortage.

But wait, before we draw any conclusions – can we trust this new report?

To me it looks like these guys have done the homework. Their way of estimating the vacancy rate is different than REIV’s. The difference is that they use water consumption to determine whether or not a house is vacant. They assume that a house is empty if the average daily consumption of water is less than 50L. This system too can have “false negatives” – meaning it won’t determine all the unoccupied buildings with 100% accuracy. For example, an unoccupied house with an active sprinkler system or a dripping tap can be seen as occupied. But I’d still say that it’s accurate enough.

REIV’s method to determine vacancy is by taking the number of rental properties listed to let, and dividing it by the total number of properties listed with REIV’s members, real estate agents. This way if a property wasn’t advertised to let, it will escape REIV’s attention.

So Earthsharing Australia examined 935,305 properties in 261 Melbourne suburbs,
and the results are truly shocking – the genuine vacancy rate in, for example, Docklands is over 23%!

Think of the effect this may have on housing prices if these “locked up” properties were to flood the market, when their owners lose confidence in the property market. And of course, in that scenario every suburb would feel it (not just the suburbs with high genuine vacancy rates), because of the potential domino effect on house prices.

Earthsharing Australia are soon to release a documentary “Real Estate 4 Ransome”, about land banking and tax reform. If you, too, are pondering over the question “Why does land cost the earth?” – watch the trailer below.

Real Estate 4 Ransom Official Trailer from Real Estate 4 Ransom on Vimeo.

Photo source

{ 1 comment… read it below or add one }

Terry June 8, 2012 at 3:12 pm

I live in W.A. and have been renting for the last 5 years, by choice.
I have never, ever had a problem in finding a rental. I see so many people panicking about getting a house, unit etc.
My close friend is in real estate, she says it’s just a game to keep rentals and investment confidence high, as realtor’s make money out of sales rather than low income from rental agreements.
My brother owns a few properties in remote areas and he said they are expensive because the mines need short term housing. However, with cutbacks in the mine rent assistance, tenants are getting harder to find. Time to sell before it’s too late.
The property I am in now has dropped in value by 20% because of all the hype about housing.
W.A. is way overpriced for what you get. I laugh when i see people paying $300,000 for a micro lot, next to a service station. Rocks in their heads

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