It seems that the RBA's Anthony Richards may have been reading my blog. His comment today from a national housing market forum includes the following
I said in a talk earlier this year that most calculations available then put underlying demand at something like 180,000 to 200,000 dwellings per year. However, I noted that such figuring was based on simply extrapolating earlier trends in household size and ignored the likely impact of prices on the demand for housing. At some point, the overall demand for housing will be affected by the higher cost of housing. For example, with housing – both owner-occupied and renter – more expensive than in
the past, we might expect to see some young adults choosing to live with their parents for longer. We might expect some households to look for an extra flatmate rather than leaving a bedroom vacant. Some owners of holiday homes or second homes might have become more inclined to sell them, with those houses then occupied full-time.
Hence the ‘undersupply’ of housing might not be as large as sometimes thought. But this is not necessarily something that should reassure us – it may be because the higher cost of housing – partly reflecting supply side problems – has choked off some of the demand that might otherwise have existed.
However, by the end of his statement, fingers are squarely pointed at the pet issue for housing analysts, supply side constraints. That bloody housing shortage gets a good run in his statement as well.
I also wonder how we are meant to know the counterfactual demand that might otherwise have existed. Isn't he just saying that demand for housing follows the law of demand?
His remarks are reported as evidence that the housing market is ready to 'take off'. But only time will tell whether the inverse correlation between change in housing shortage and change in price proves reliable in the longer term, or whether the RBA really can forecast market behaviour.
It looks like I'm not the only one who has interepreted the housing market exactly the opposite way to the RBA and other property bulls.