Abstract: A number of organisations have concluded that Australia has suffered from a housing shortage in recent years, which is also predicted to worsen in the future. The housing shortage is in turn identified as a primary cause of rising house prices in recent years, with an increase in new housing construction offered as the solution to low affordability. The National Housing Supply Council (NHSC), established by the Commonwealth Government in 2008, estimated that Australia had a shortage of 178,400 dwellings in June 2009. Calculations of an Australia housing shortage are based around the immigration led surge in population growth in recent years, which has lifted society’s underlying demand for housing faster than growth in the dwelling stock. Whilst there is some legitimacy to this position, there are also flaws in the underlying demand growth methodologies employed. This paper presents an alternative analysis of the adequacy of Australia’s housing supply, in order to reach three conclusions:

1. Underlying demand growth methodologies used to calculate the housing shortage are flawed, as they do not recognise the significant excess capacity of the existing housing stock or the role of higher prices in reducing real demand.

2. Population growth can continue to be accommodated in the capacity of the existing total housing stock. Considering long term historic trends, this is achieved through a relatively minor adjustment in the average occupancy rate.

3. The influence of the relative level of new dwelling construction as the cause of high house prices is somewhat overstated.

All quantitative analysis of the housing market is limited by the availability and quality of statistics. Nationally aggregated data hides lower level diversity, with housing outcomes ultimately determined at a unique individual level. Younger and/or poorer people are those predominately impacted by lower housing affordability, regardless of the extent to which this has been caused by inadequate new dwelling construction. This paper has been written from June to August 2011 based on available data and the NHSC’s 2 nd State of Supply Report (NHSC Report), released in early 2010. While the statistical analysis in this report will become outdated with the release of the NHSC’s third report (anticipated for later in 2011) and 2011 Census data, the concepts presented and conclusion reached will likely remain valid.