The Sydney suburbs with an oversupply - and an undersupply of housing

Analysis by Australian National University academics Ben Phillips and Cukkoo Joseph has identified a long-term oversupply of housing in many inner Sydney suburbs. Despite the surplus, property prices have surged in that region over the past five years.

The findings cast doubt on assertions made by many political leaders, including Premier Gladys Berejiklian, that adding new housing supply is the best way to improve affordability.

The ANU report concluded that while increasing housing supply has "some benefits" it is "unlikely in isolation to create affordable housing" in Australia.

"This inference is all the more likely given the time taken to complete new dwellings and that inevitably in the short to medium term new supply is only likely to be a small share of the total dwelling stock," it said.

The modelling showed the statistical region of "inner-Sydney", which includes the central business district and surrounding suburbs, has accumulated a "significant surplus" of 5900 dwellings relative to population growth since 2001 - the largest over-supply among 328 regions across Australia included in the study.

Most of the inner-north, inner west and inner-south of Sydney also had a housing surplus.

However, there were significant housing shortages in middle and outer ring areas including Strathfield, Fairfield, Bringelly and Hurstville. Those four regions rank in the top-10 housing shortage regions of Australia.

The findings imply new policies to improve affordability will be required.

"If, as this report suggests, housing in Australia is not in short supply, then we need to find alternative explanations for house-price growth - such explanations would direct policy in applying levers capable of affecting housing affordability," the report said.

The modelling drew on census population figures to estimate the underlying demand for housing at the regional level.

Of the 328 statistical areas studied nationwide, 250 were found to have a housing surplus while 78 had a shortage. Inner Sydney, Melbourne and Brisbane were "all over-supplied" due to strong growth in unit developments, the report said.

Overall, the Australian housing market was shown to have an oversupply of 164,000 dwellings between 2001 and 2017.

Ms Berejiklian made housing affordability a key priority for her government when she became Premier earlier this year and has stated "the most effective way" to tackle housing affordability is to increase supply.

Prime Minister Malcolm Turnbull has backed this approach. In May last year he said: "Now this is how you address housing affordability. Housing affordability is the result of there being insufficient supply of housing. You need to have more supply of housing."

A record 37,608 new houses were completed in Sydney during the year to March, Department of Planning figures show. That's almost three times more new dwellings than the city added back in 2008 and 2009.

But the ANU report's co-author, economist Ben Phillips, said often the behaviour of property prices at the regional level "has nothing to do" with underlying fundamentals for housing demand, including population growth.

"Housing is an asset and assets don't always reflect the fundamental underlying value - it's not like the demand for ice cream or bananas," he said.

"Supply does matter, but there are lots of other things at play that can swamp that impact ??? that means improving affordability is not as straight forward as fast-tracking a bit of supply to solve the problem."

The paper looked at population growth and demographic change in Australia's 328 regions called "statistical area level 3" by the Bureau of Statistics and analysed how well new supply of housing meets demand in those areas.

"This research represents Australia's first published regional analysis of housing demand and supply," the report said.

Some regional centres, particularly those in mining-sensitive areas such as North Queensland and Western Australia, were found to have housing surpluses.