Australia’s housing market could be unable to provide enough housing supply at the rate dwelling construction and household formation are growing.
The National Housing Finance and Investment Corporation (NHFIC)’s State of the Nation’s Housing report for 2022-23 showed how the strong demand for housing, the tight supply of labour and materials, and bad weather have placed significant pressure on the construction industry.
According to the report, the gap between supply and household formation has widened in recent years due to the deterioration in the supply outlook.
In fact, an expected shortfall of 79,000 dwellings is expected in the next 10 years from 2023 to 2033.
Over the first half of the said decade, the gap between supply and household formation is expected to be 106,000 dwellings.
There is an emphasis on the shortfall of apartments and medium-density dwellings over the coming years — supply in this segment is expected to be 62,300 below new household formation over the five years to 2027, and 81,200 below new household formation over the decade.
Here are the other key findings of the report:
- Around 28,000 homes were delayed in 2022.
- Builders are making cost allowances of up to 40% for unexpected delays, up from a more normal 20%.
- Rental growth in regional areas is now falling after a period of record demand.
- Rental growth in major cities such as Sydney and Melbourne are outpacing rental growth in regional New South Wales and Victoria, which suggests the premium of living in large cities close to employment centres may be returning.
- The Centre for Population expects net overseas migration to be 268,000 higher across 2021–22, 2022–23, and 2023–24.
- NHFIC expects around 1.8 million households to form from 2023 to 2033.
Approvals for apartments still lagging versus houses
Latest figures from the Australian Bureau of Statistics showed a 4% increase in the number of approved dwellings, bouncing from the 27.1% fall in January.
The increase was driven by the 11.3% increase in the house segment, which plunged to a 10-year low in January. On an annual basis, approvals for the house segment were 13.6% lower.
Meanwhile, apartment approvals went down 9.5% over the month, extending the 40.3% decline in January to hit the lowest level since July 2012.
Across Australia, total dwelling approvals increased sharply in Tasmania at 122.1%, while South Australia (28.5%), New South Wales (14.0%) and Victoria (8.5%), also recording gains.
Overall, the value of residential building approvals increased 7.7% in the month, driven by the 8.4% growth in new residential building and the 3.7% rise in renovations.
Addressing the “grim” housing supply deterioration
Property Council chief executive Mike Zorbas said the deficit in housing supply is a grim warning, and a wake-up call for the governments to make urgent changes to national housing targets.
“It reminds us that state, territory and local governments simply have to lift their run rates on housing supply across the at market, key worker and social housing spectrum,” he said.
Mr Zorbas said there is also a need to create the right investment conditions for new build-to-rent housing, purpose-built student accommodation and retirement living communities.
“We need this for our existing population and to continue to attract the skilled migrants and students who support our education sector and bridge the huge gaps in our mining, construction agricultural and retail workforces nationally,” he said.
For Housing Industry Association chief economist Tim Reardon, the imposition of a range of punitive taxes on investors by state governments and the additional constraints through the Foreign Investment Review Board (FIRB) and diplomatic disputes have seen investors withdraw from the market.
“At the same time, the cost of new apartments is set to increase in 2023 with new regulatory costs imposed through building regulations — these regulatory costs are in addition to the increased cost of labour and materials that increased rapidly over the last two years.”
“The combination of increased costs and less investment has seen apartment construction slow well below what is needed in a typical year of population growth; but with migration expected to be at record levels in 2023, the shortage of housing will continue to deteriorate.”
Master Builders Australia CEO Denita Wawn said there is also a need to talk about fixed-price contracts and appropriate risk-sharing between banks, developers, and builders.
“Governments must lift the handbrake on the building and construction industry by bringing down the cost of doing business,” she said.
“We need around half a million new entrants into our industry by 2026 to ensure homes get built, and the broader construction ecosystem of infrastructure and commercial premises can be delivered.”
Ms Wawn said the Housing Accord that envisions one million homes build starting 2024 is needed now.
“Governments need to look at what impact their regulations and policies have on the cost of building homes and on the cost of building social infrastructure; that includes industrial relations laws, the cost of planning and the need for more titled land,” she said.
“There is no silver bullet; this will take a concerted effort by all levels of government working in collaboration with industry.”
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