Australia's housing crisis has been a topic of intense discussion and concern over the last year.
In an ambitious response, the Federal Government, along with the New South Wales and Victorian Governments, have set targets to deliver a substantial number of new dwellings over the next decade.
But are these targets feasible considering Australia's historical completions and current market conditions?
The Federal Government's National Housing Accord aims to deliver 1.2 million new dwellings over five years (240,000 annually) from 2024.
NSW and Victoria have set targets of 750,000 and 800,000 new dwellings over the next decade, respectively.
Property consultants Charter Keck Cramer's recent assessment highlights that these targets, while reflecting the demand for housing, are ambitious compared to historical completions and the current state of the property market.
Australia's peak housing supply year was FY2017, with just under 220,000 dwellings.
In comparison, NSW and Victoria achieved their peak in FY2018 and FY2017 with 73,000 and 67,000 dwellings, respectively.
The new targets require a significant scale-up in construction, echoing the housing construction boom of the 1950s and 1960s.
Build to Sell (BTS)
BTS projects involve developers selling apartments off the plan (OTP) to fund construction.
Historically, investors, both domestic and international, have been key purchasers in the BTS market.
Charter Keck Cramer notes that investors account for 50-75% of BTS apartment sales, indicating their crucial role in funding these projects.
Build to Rent (BTR)
The BTR market, an emerging sector in Australian real estate, entails developers renting out completed dwellings and potentially selling them as income-producing assets later.
Unlike BTS, BTR projects don't rely on Off The Plan presales, but need to demonstrate financial feasibility for funding.
The role of investors
The BTS market's reliance on presales to investors is significant.
In contrast, BTR projects need to be financially feasible upon completion to attract funding.
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Charter Keck Cramer stresses that without investor participation, projects in both markets will struggle to secure funding, leading to a shortfall in housing supply.
However off the plan purchases are now out of favour with Australian investors who, in general, have a better understading that these type of properties make poor investments.
At the same time, while foreign investors are slowly returning to the Australian market, they are no where near as enthusiastic as they were in the property boom of 2015-17.
Charter Keck Cramer estimates that to meet the government targets, Australia needs to complete between 72,000 and 78,000 BTS and BTR apartments annually.
This level of supply demands consistent policy support and economic stability.
A common misconception is that BTS apartments are predominantly in high-rise buildings.
However, Charter Keck Cramer's analysis reveals a significant contribution from mid-rise projects (2-6 stories).
These are typically located in inner and middle city regions, near amenities and infrastructure, offering a more cost-effective solution compared to greenfield developments.
Charter Keck Cramer believes the following policy recommendations should help in the feasibility of achieving the goal:
- Streamlining Policies: Governments must implement consistent and complementary policies to facilitate housing supply.
- Reviving Investor Interest: Incentives for BTS apartment investors are crucial. This includes OTP stamp duty incentives, tax reliefs, and expanded lending.
- Regulatory Adjustments: APRA should reevaluate its serviceability buffers and lending criteria to reflect current market conditions.
- Government Support Mechanisms: Proposals like an Apartment Viability Fund and rental subsidies could bolster the construction sector.
- Innovative Construction Methods: Embracing methods like modular construction can enhance efficiency and speed.
The bottom line is there is no quick fix and therefore no end in sight for our housing crisis.
Charter Keck Cramer underscores the government's responsibility in facilitating the supply of new dwellings.
The successful implementation of these policies will not only help in meeting the housing targets but also contribute to stabilizing the market, creating jobs, and generating tax revenue.
While some measures might face public scrutiny, their necessity is undeniable for achieving the set housing goals.