Is Australia set to fall 200,000 homes short of target?
Tom Devitt, Senior Economist at HIA, recently shed light on a concerning trend in Australia's housing market.
According to the latest HIA Outlook report, Australia is gearing up to construct just over one million new homes in the coming five years.
This figure falls alarmingly short—by nearly 200,000 homes—of the government's ambitious targets.
The report suggests that achieving the 1.2 million home target is feasible but hinges on critical policy reforms.
These include reducing taxes on home building, alleviating construction cost pressures, and lowering land expenses.
The current state and future projections
According to Devitt, as of now, the markets for both detached housing and multi-units are expected to rebound from recent decade lows in 2024/25.
However, this anticipated recovery is overshadowed by uncertainties surrounding interest rates.
He said that with unemployment rates staying low and inflation persisting, a cash rate cut this year seems increasingly unlikely.
Despite this, the home building sector's revival isn't solely dependent on interest rate cuts but rather on a stable rate outlook and the burgeoning demand for housing.
This latent demand can foster market confidence and encourage buyers to re-enter the market.
Yet, even with this recovery, the government's housing targets remain elusive.
Devitt highlights that the persistent constraints of hefty taxes and regulations on home building are significant hurdles.
Particularly, the surcharges on foreign investors are counterproductive, deterring the very investment necessary to meet housing goals.
The cost of compliance and the need for industry capacity
Devitt also notes that the recent modifications to building codes are another concern, potentially adding tens of thousands of dollars to new home construction costs.
Addressing the industry's capacity is equally vital.
Ensuring access to skilled labour from overseas and bolstering our domestic workforce through training and apprenticeship support are key steps.
Continuation of current apprenticeship subsidies, for instance, could significantly contribute to this objective.
Devitt said that if these areas undergo reform, we might not only meet but exceed the government's housing targets.
The potential for Australia to build enough homes to satisfy demand is real, but it requires a concerted effort to reform the current system.
A closer look at housing commencements
The HIA report shows that in terms of detached house commencements, we're expecting an annual total of 96,250 in 2023/24.
This marks a 12.6% decrease from the previous year and a nearly one-third drop from the 2020/21 peak.
It's the lowest we've seen in over a decade.
A slight improvement is forecast for 2024/25, with an estimated 97,800 commencements, before a more robust recovery to over 110,000 by 2026/27.
For multi-unit commencements, the outlook is somewhat brighter.
HIA anticipates a total of 72,010 in 2023/24, a 14.1% increase from the previous year's 11-year low.
This upward trend is expected to continue, with an estimated 23.1% rise to 88,610 in 2024/25, nearing 100,000 by 2026/27 before moderating slightly to 96,230 by 2027/28.
