Total dwelling completions (first pane) and attached dwelling completions (second pane), 1985 to 2013, in NSW, Victoria and Qld (source data: ABS)

Last month I looked at some extraordinary ABS stats showing that the number of dwelling Approvals in Melbourne far exceeds the number in Sydney.

What’s just as astonishing is more new dwellings were approved for construction in metropolitan Melbourne than in all of NSW between January 2010 and April 2014 (see Does housing supply impact on inequality?).

However those numbers are Approvals; it’s an important and valid measure but it doesn’t necessarily follow that all projects with planning Approval will necessarily be built. For example, the city centre apartment market in Melbourne is a classic case of more approved projects vying for buyers and finance than the market can realistically absorb; some won’t get built.

Another measure that’s useful in complementing Approvals is Completions; it’s a measure of the number of dwellings that have actually been built i.e. reached the stage where they’re now habitable.

Statistics on Completions are only readily available via the ABS at State-level but they reinforce the view that lack of supply, due in large part to political restrictions, is a key problem in NSW (see first exhibit).

Although its population is much larger than Victoria’s (currently 7.5 million vs 5.8 million), only 124,488 dwellings were completed in NSW over the four years from the start of 2010 to the end of 2013. In contrast, 201,800 were built in Victoria, or a staggering 61% more. (1)

That’s mainly because Victoria is better at providing detached houses; it turned out 131,298 over the period compared to a measly 68,358 in NSW.

But Victoria also built many more attached dwellings i.e. town houses and apartments at medium/high density. Between 2010 and 2013, developers put up 57,130 attached dwellings in NSW, considerably less than the 70,502 constructed in Victoria.

As the second exhibit below shows, the share of attached dwellings in total completions accelerated sharply in Victoria from around 2010 and in the latest quarter was almost level with NSW (45% in Victoria; 47% in NSW).

Relative rates of population growth don’t explain all of these differences. NSW’s population increased by 337,141 over the period and Victoria’s by much the same, 345,818.

At the capital city level, dwelling prices are substantially lower in Melbourne than they are in Sydney. That’s due to a number of factors, including Sydney’s more constrained geography and higher developer charges, but it’s also a function of more politically-restricted housing supply in both established and fringe areas.

It’s sometimes argued that Victoria is “opening the floodgates” to development but that’s a doubtful proposition.

As I’ve discussed before, Professors Glen Searle and Kevin O’Connor point out that both NSW and Victoria experienced a supply deficiency relative to underlying demand between June 2001 and June 2010 (see Why has Melbourne grown faster than Sydney?). In NSW’s case it was 73,700 dwellings; it was a lot less in Victoria, but still 17,600 dwellings.

It’s also sometimes suggested that Melbourne in particular is sacrificing too much in terms of liveability, especially in the city centre, in return for its higher housing supply.

It’s certainly true historically that a higher proportion of Melbourne’s growth was in the form of detached dwellings, principally on the fringe, compared to Sydney (see Has the Grattan Institute got the answer to our housing woes?), but the gap has closed dramatically in recent years.

In any event, it’s a strange definition of liveability that effectively ignores a $200,000 difference in the price of a typical new house (see Are apartments cheaper than houses?).

Further, there’s little evidence to suggest the centre of Melbourne is any less liveable than the centre of Sydney as a result of the enormous increase in the supply of apartments in recent years. Indeed, I think the larger resident population in Melbourne’s CBD and its significantly more affordable housing stock greatly improves its liveability.

Put another way, Sydney and NSW don’t seem to be getting a commensurate pay-off in enhanced liveability compared to Melbourne and Victoria as a result of restrictions on supply. Many of those restrictions are planning constraints that the NSW Government can address

If we turn to the data on Commencements (i.e. the number of projects started construction but not finished), there are encouraging signs that NSW’s performance is improving. While it underperformed over 2010-2013 with just 142,855 Commencements compared to Victoria’s 213,616, the trend has been strong since the middle of 2012 (2). The number of Commencements in NSW equalled Victoria in the December quarter 2013 for the first time since 2004.

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  1. I’ve selected the four years 2010 to 2013 because it approximates the period I used in my earlier discussion of dwelling approvals; see Does housing supply impact on inequality?
  2. The gap over 2010-13 was closer on attached dwellings. There were 74,139 Commencements in this category in NSW and 87,605 in Victoria.
Attached dwellings share (%) of total completions, 1985 - 2013 (source data: ABS)