Renters have very few rental options, and buyers are struggling with high prices, which is a problem that has been ongoing for at least thirty years.
To fix these issues in a sustainable way, we need to build more homes over the long term.
Governments across Australia are starting to realize this need.
In August, the National Cabinet committed to constructing 1.2 million homes in the next five years, and the Victorian government's Housing Statement aims for 800,000 new homes in Victoria over the next ten years.
These are admirable goals, but are we making progress toward achieving them?
According to PropTrack's Senior Economist, Angus Moore, to build 1.2 million homes over the next five years, we’ll need to build 240,000 every year.
However, at the moment, we aren't.
"Australia completed around 170,000 new homes over the year to March 2023, the most recent period for which we have data.
That’s well short of the needed pace.
To meet that 1.2 million goal, we need to increase our pace of building by almost 40% from where it currently stands.
That’s a stiff increase, but it isn’t an impossible target by any means."
PropTrack's data show that in the late 2010s, Australia completed around 200-210,000 homes every year.
At peak in early 2017, we’d completed nearly 220,000.
Certainly, Australia has grown larger in the past six years.
In 2017, we built 8.9 new homes each year for every 1000 people.
Today's population is roughly 235,000 homes per year, which is very close to what we need.
Moore said that part of why the pace of building has slowed in recent years is that construction has been disrupted, which means homes have taken longer to build.
This is true for all types of buildings.
He further commented:
"The impact of this increase is big.
The uptick in time to build detached houses, which looks small on the chart, means that the pipeline of detached houses under construction has swelled from around 60,000 pre-pandemic to more than 100,000 today.
About two-thirds of that increase can be attributed to longer build times."
Several reasons have led to this rise, but a key factor in the last few years has been disruptions in global supply chains, making it tough to get materials and causing building costs to go up.
PropTrack's data noted that construction costs surged during the pandemic, driven by big increases in the cost of raw materials.
That meant construction costs increased at their fastest rate since the 1980s – with the cost to build a detached house up an eye-watering 20% over the year to September 2022.
Moore noted that the good news is things are starting to stabilise:
"House construction costs were up 1% between March and June this year; while that’s still faster than what was typical pre-pandemic, it is nowhere near as unusual as we were seeing in 2022."
Although some disruptions from the pandemic are getting better, which should aid construction, the next few years still seem like they will be too sluggish.
PropTrack's figures highlight that Building approvals for new homes have fallen as interest rates have risen.
Across the country, we’re not starting the process to build new homes at anything like the rate we saw in the 2010s.
"While approvals for detached houses have slowed from what we saw in the late 2010s, the big change is in high-density.
We are not approving anywhere near as many apartments and semi-detached homes as we were in late 2010s.
If we’re going to hit that target of 1.2 million homes, that will need to change.
More medium- and high-density development in inner- and middle-ring areas was how we built more in 2017, and if we’re going to hit 1.2 million homes, it will have to be part of the answer.
This approach has worked in cities like Auckland and Minneapolis, both of which made building mid-rise medium-density homes easier.
This change heralded a surge in construction, and drove down rents relative to peer cities.
These changes aren’t easy, but unless we focus on what works, housing affordability in Australia will remain challenging."
Putting things into perspective the aim is to build the equivalent of another Adelaide's (population 1.3 million) worth of houses over the next 5 years.
But it's more than that - we also have to build the associated infrastructure - hundreds of schools, dozens of hospitals, lots more shops.
This lofty goal seems unrealistic, meaning there is no end in sight to our housing and rental shortage.