The Housing Industry Association (HIA), has highlighted a significant challenge in meeting the Australian Government's ambitious goal to construct 1.2 million homes over the next five years.
According to HIA's latest Economic and Industry Outlook report, the rate of apartment construction needs to double from current levels.
However, capacity constraints are expected to keep apartment commencements at exceptionally low levels for at least another year.
Tim Reardon, Chief Economist at the Housing Industry Association (HIA) added, “With the current policy framework, it could take upwards of six years to build the 1.2 million homes targeted.”
Since 2016, the volume of multi-unit commencements has plummeted to nearly half, exacerbated by investor taxes.
Recent years have seen further constraints due to labour and material shortages and rising costs.
These issues are anticipated to persist into the next year, impacting high-rise apartment projects significantly.
Many such projects are shelved, facing delays due to the need for refinancing, reapproval, and escalating construction costs linked to changes in the National Construction Code.
This shortfall in construction activity is expected to lead to extremely low rental vacancy rates and a significant increase in rental prices in the coming years.
Intense competition for construction inputs from other sectors, including non-residential construction and mining, compounded by ongoing public infrastructure projects, is further crowding out homebuilding, particularly in the high-rise sector.
The detached house market is also facing challenges, with commencements predicted to hit a low by the second half of 2024.
Recovery in this segment will be slow and vary by region, influenced by factors such as high land costs, taxes, and shifting migration patterns.
State and local policies will play a crucial role in the recovery of this sector.
Despite global influences over the past three years, local policies will increasingly determine the feasibility of delivering new homes to the market.
Regions that can boost home supply may see significant economic benefits and broader activity stimulation.
As we face pent-up housing demand and low unemployment that further fuels this demand, rising established home prices may make new home construction more appealing, despite the challenges posed by higher interest rates.
Reardon concludes:
“Achieving the construction of 1.2 million homes in five years is feasible but requires substantial policy adjustments, including tax reductions on homebuilding, alleviating construction costs, and reducing land costs.
Without these changes, even an increased construction volume won't suffice to overcome the housing shortage."
Outlook by Numbers:
- Detached Houses: Construction commencements are projected to drop to 95,380 in 2023/24—a 13.4% decrease from the previous year and a significant drop from the 2020/21 peak. A modest recovery is expected post-2024.
- Multi-Units: Commencements are set to rise slightly to 64,350 in 2023/24, with anticipated growth leading to 78,280 commencements in 2024/25 as driven by high rental demand. This trend is expected to stabilize at around 100,000 units annually post-2026, influenced positively by the Olympics and institutional investments.
