Exploring the volatility pattern of Australian housing supply

In recent years, a decline trend in the Australian housing supply has been evident. Lacking of new supply would have a negative impact on housing affordability. Thus, an investigation of housing supply volatility is required for effective housing policy decision-making. However, little study has been placed on the volatility pattern of housing supply. Therefore, this study examines the volatility series of housing supply in Australia. A Generalized Autoregressive Conditional Heterskedasticity-in-Mean (GARCH-M) model is employed to analyze the volatility series of Australian housing supply over the study period of 1974-2010. The results show that the volatility of housing supply is negatively linked to housing starts, suggesting that higher volatility of housing supply does lower housing construction activities. Therefore policy makers should monitor the volatility of housing supply; thereby these will enhance housing construction activities and increase the available of housing supply to potential home buyers.