This paper proposes a policy-relevant definition of housing market efficiency and a set of indicators for measuring the responsiveness of housing supply.
Over the past decade, and particularly since the Global Financial Crisis (GFC), there has been increasing policy interest in relationships between housing and the wider economy, both in Australia (Berry & Dalton 2004; Beer et al. 2011; Yates 2011) and internationally (Muellbauer & Murphy 2008; OECD 2011; Levitin & Wachter 2013). Such work highlights how economic goals including industry productivity, high employment, and overall financial stability are threatened by poorly functioning housing markets.
Further, as highlighted by a number of studies and government inquiries in Australia, policy settings designed to encourage home ownership and property investment may exacerbate price inflation and consequent affordability pressures for lower income groups without supporting aspiring purchasers or generating new housing supply (Parliament of Australia 2008; Yates 2010; Wood et al. 2012a). Although there has been considerable policy development around these distortions (Henry et al. 2010; Wood et al. 2012b), a key additional area for policy intervention is around the supply of new housing in response to demand (National Housing Supply Council (NHSC) 2014).
Despite concerted efforts by the Australian states and territories to reduce regulatory burdens perceived to affect housing supply (COAG Reform Council 2012b), overall there has been very limited analysis of the efficacy of these reforms in alleviating supply pressures. Further, although Australia’s National Affordable Housing Agreement (NAHA) identifies a number of outcomes relating to the supply of housing, including that ‘people are able to rent housing that meets their needs; that people can purchase affordable housing’ and that ‘people have access to housing through an efficient and responsive housing market” (COAG 2009, p.4 [italics added]), there has been very little systematic analysis of the capacity for regional and local urban planning policy and procedural frameworks to respond to changing housing needs and affordability pressures in Australia. Indeed, although performance against the NAHA is subject to annual review (Steering Committee for the Review of Government Service Provision (SCRGSP) 2012, 2014), outcome 3—’an efficient and responsive housing market’ remains unmeasured.