Supply & Demand (w2)

• Market segmentation


  Sub-markets or market segments based on use and geography
• Property sub-markets


  • Residential
  • Office
  • Retail
  • Industrial
  • Land
• Sub-market


  Substitutable properties that respond to external factors in a similar way
• Space market


  Market for the usage (or right to use) property
• Capital market


  Market for property investment (direct and indirect e.g. AREIT)
• Essential uses of demand and supply analysis

  • Valuation
  • Development
  • Investment advice
  • Lending decisions
• Endogenous variables


  Variables within the user and asset markets such as rents, prices, vacancy rates, net absorption, capitalisation rates, portfolio exposure and change
• General market factors driving housing demand

  • Macroeconomic conditions (unemployment, interest rates, consumer confidence, population growth)
  • Household factors (income, job stability, family situation)
• Property specific factors driving housing demand

  • Location
  • Physical characteristics
  • Neighbourhood quality
  • Accessibility
  • Local services
  • Crime
  • Open space
  • Investment returns
  • Affordability
• Normal goods


  Goods where demand increases as income increases
• Inferior goods


  Goods where demand decreases as income increases
• Owner occupation represents a normal good, while renting represents an inferior good in housing
• Increase in income


  Increases demand for normal goods, decreases demand for inferior goods
• The ABS defines a household as one or more persons, at least one of whom is at least 15 years of age, usually resident in the same private dwelling
• The ABS defines a family as two or more persons, one of whom is at least 15 years of age, who are related by blood, marriage, adoption, step or fostering, and who are usually resident in the same household
• Household formation is a key driver of housing demand, coming from young people leaving the family home, migration into an area, and existing households splitting
• Household types


  • Lone person
  • Group households
  • Family households
• Greater Perth population growth to YoY to June 2023 was 3.1%, the highest nationally, driven by natural increase and net interstate and overseas migration
• Household types


  • Lone person (25.4%)
  • Group households (3.4%)
  • Family households (71.2%)
• Determinants of housing demand

  • Interest rates
  • Income
  • Population
  • Related goods
  • Other
• Greater Perth population growth to YoY to June 2023 was 3.1% - higher than previous years, highest nationally
• Natural increase was the major component of population change (13.5k people)
• Increase in Population


  1. Supply can respond instantly

  2. Supply can respond quickly (quite elastic)

  3. Supply can only respond very slowly
• Increase in price of substitute

  Increase in demand
• Increase in price of complement


  Decrease in demand
• Tastes


  Impact of preferences/trends, e.g. increase in demand for coastal property
• Consumer Confidence


  Willingness of consumers to purchase a good given the current economic circumstances
• Employment and type


  Rises in casual or part time employment results in decreased demand for owner occupation– consumers (and lenders!) may not feel confident in their ability to service a loan
• Two types of supply: Existing dwelling supply (Stock) and New dwelling supply (Flow)
• Land needs to be allocated (zoned) to the appropriate use
• Inelastic in the short term - Very slow to respond to demand changes, Can't create new land, Refurbishment quickest traditional supply response, Large scale supply response takes many years, Small scale supply response makes little difference to demand
• Determinants of Supply


  • Price
  • Cost of construction
  • Number of suppliers
  • Technology
  • Related products
  • Expectations
• Total private dwellings (includes unoccupied private dwellings) 882,375
• Housing Stock (Existing Dwellings)


  • Separate house 77.8%
  • Semi-detached, row or terrace house, townhouse 14.2%
  • Flat, unit or apartment 7.6%
  • Other dwellings 0.3%
• Housing Flow (New Dwellings) - Dwelling Completions (~3% of stock pa), Net Additions = Dwelling Completions - Demolitions (Demolitions estimated at around 2,000pa)
• How we measure supply

  • Lots for sale on the market
  • Final lot approvals and conditional approvals
  • Established homes - Number of listings for sale and rent
  • New homes
  • Dwelling commencements
  • Building approvals
  • Housing finance – home loan approvals – new and established
  • First Home Owner Grant data
• Supply is very much determined by planning - zoning
• Residential supply


  • Urban or Urban deferred (MRS)
  • Residential (TPS)
• Commercial supply


  • Urban development Zone
  • Commercial
  • Special Commercial
  • Mixed Business
  • General industry
  • Town centre
• Sources of Supply: Greenfield

  1. Undeveloped (greenfield) land, Strategic planning identifies land for development

  2. New land zoned for residential development

  3. Land subdivision creating new lots for purchase

  4. Lots purchased by household

  5. Project home constructed

  6. Addition of a housing unit to the stock