We have been hearing for years now that there is a housing shortage, particularly in Sydney. In fact we’ve been told it isn’t just a shortage, but a “critical” shortage, and due to a number of factors which include organic population growth and immigration the situation continues to get worse.

But if there is such a shortage of housing, where is the evidence? You don’t regularly see families living in boxes lining the streets or people camping out in their cars in parking lots, so if where are all of these people without homes living?

Well, whilst people aren’t necessarily living on the streets, the impact is being felt by people none the less and the housing shortage is having a flow on effect into just about every segment of the property market.

You see, the shortage of housing is keeping entry level properties in our major cities out of reach of most first home buyers, so they are staying at home longer. People looking to trade up are sticking with their current place until they find something they like within their budget, and empty nesters looking to downsize are competing with first home buyers and investors. All of this is generating pent up demand for property across the board.

Currently this is manifesting itself in the form of rising rents. Figures recently released by the NSW Government have revealed a dramatic increase in rental prices in the state’s capital. Median Rent for a three bedroom home in Sydney rose 10 per cent in 2010, more than double the increase recorded in 2009.

Not surprisingly, the price of renting increased most in the western suburbs of Sydney, but Investors within the inner ring of the city haven’t missed out either with a median rent of $750 a week for a three bedroom property.

Aaron Gadiel, CEO of Urban Taskforce, said a lack of new housing was clearly placing strong upward pressure on rental prices.

“Residential lot production is presently running at less than half the level required by the NSW government’s own Metropolitan Strategy.”

Moreover, Mr Gadiel said that no Australian capital city approves less new homes per head of population than Sydney.

“The city’s per capita housing supply has halved since 2003,” he said.

So, whilst there aren’t necessarily people living on the streets due to the housing shorting, pent up demand is definitely growing and it’s hard to see anything changing, particularly in Sydney will in the near future. This is of course is great news for Investors with record rental shortages, increasing rents and an ever increasing demand. The question is, how long can prices remain stable?