Is there a housing shortage?

The following is a quote from a recent government report analysing housing needs:
"A likely response by government and the private market to the emergence of a large housing shortage would be the construction of a larger number of smaller, low cost dwellings. Therefore, the trends towards larger dwellings with fewer occupants discredit the existence of a national housing supply shortage. These trends indicate that the housing market has been driven more by the demand for increasing housing quality, rather than the demand for increasing quantity. It also shows that there is significant capacity in the existing housing stock to absorb more people."

The Hornsby Shire is indeed proposing to build large numbers of small units in their five-storey residential developments. But as explained in this report, the focus of that activity is at best questionable. The report points out that the average number of persons per bedroom has fallen from 1.15 in 1976 to 0.87 in 2006. Not only do kids now expect their own room, the household also expects to have a spare bedroom for visitors.

If this is what buyers want, Hornsby Shire's proposal to build small units seems to go against the market trend.