Table of contents
From population boom to housing nightmare: addressing Australia’s housing - featured image
By Michael Yardney

From population boom to housing nightmare: addressing Australia’s housing

There is a housing crisis in Australia with an undersupply of both properties for rental and for sale.

The surge in immigration and the return of international students has seen a demand for housing boom.

The extra half a million people who will be coming over the next year or two have to live somewhere, and they don’t bring houses with them.

This means they are competing with locals in the rental market, where vacancy rates are at near-record-low levels and rents are rising at a strong double-digit pace.

Property Market

This jump in demand is also now spilling into house prices because there is a shortage of dwellings for sale on the market.

Australia is simply not building enough new homes to accommodate the extra people coming into Australia.

The number of building approvals for dwellings has slumped to around its lowest level in a decade.

And this imbalance in supply and demand is causing house prices to escalate, making it difficult for many people to enter the property market, particularly first-home buyers.

As a result, a growing number of Australians are being priced out of the housing market, exacerbating the housing crisis.

But it’s more than that…the implications of an undersupplied housing market are far-reaching.

Not only do rising rental and purchase prices place a significant burden on those looking for a home, but the lack of affordable housing options can also lead to increased homelessness, social inequity, and financial stress for many Australian households.

It should come as no surprise that the ramifications extend beyond the personal sphere, affecting the broader economy.

High housing costs can deter potential skilled migrants from moving to Australia – why would they come here if there is nowhere to live in turn this would reduce the talent pool available to businesses and hamper economic growth.

Similarly, high living expenses may discourage Australians from spending in other sectors of the economy, further stifling growth.

Won’t more sellers now put their homes on the market?

There's no doubt that the markets are moving into the next phase of the property cycle with increased buyer confidence.

This will in turn lead to increased seller confidence with discretionary sellers putting their homes on the market as they see prices rising, especially if they feel interest rates are near their peak.

The problem is that most sellers are buyers, they need somewhere else to live.

They will likely upgrade or downgrade so bringing more properties onto the market will not really solve the undersupply problem.

And of course, some investors are selling their properties, but in general, these get sold to owner-occupiers, further exacerbating the rental crisis.

So why aren’t we just increasing the supply and providing more dwellings?

It's not so easy.

It takes quite some time to build new houses (up to a year) and much, much longer to build the many apartment towers we require to provide more medium-density living in the middle-ring suburbs of our capital cities where much of the demand is.

It’s been well documented that supply shortages and the dramatic increase in the cost of construction have caused many builders to go bankrupt and made other builders and developers wary of commencing new development projects.

And even if developers did want to commence new projects, currently financially the sums just don't add up.

The cost of building new houses has increased by around 30% over the last couple of years and the cost of developing new apartment towers has increased by over 50% in the same time frame, meaning new developments are just not financially viable at today's market prices.

In other words, our housing crisis is likely to persist for many years as strong population growth will not be matched by an increased supply of dwellings.


Can’t we just slow down immigration?

There’s nothing new about high levels of immigration to Australia.

As a nation with a relatively small population and vast landmass, Australia has a long history of immigration which has significantly contributed to its economic, social, and cultural development.

But today we need high levels of immigration in Australia to alleviate our skills shortage.

We know the government and the RBA are hell-bent on lowering inflation and one of the ways of doing this is to stifle wages growth by increasing unemployment levels from their current historic low figures.

But there are also significant medium-term reasons why strong immigration is critical for our nation.

Firstly, one of the most pressing concerns for Australia is its rapidly aging population.

With lower fertility rates and increased life expectancy, our demographic structure is shifting towards a higher proportion of elderly citizens.

This poses significant challenges to the nation's social welfare and healthcare systems, as well as overall productivity and economic sustainability.

High levels of immigration can help mitigate these challenges by bringing in younger, working-age individuals who can contribute to the workforce, bolster the tax base, and help support the growing needs of the aging population.

Secondly, skills shortages in various industries can hamper Australia's potential for further growth and innovation.

By welcoming skilled migrants, Australia can address these shortages and strengthen its competitive advantage in the global market.

Skilled immigrants not only fill the gaps in the labour market but also bring diverse perspectives, ideas, and expertise that can drive innovation and productivity.

Then, high levels of immigration have been shown to contribute to economic growth in numerous ways.

Immigrants often create businesses and generate employment opportunities, which stimulate the economy.

Additionally, the increased demand for goods and services that comes with a growing population helps to drive economic expansion.

Lastly, cultural diversity brought about by immigration enriches society, fostering a more inclusive and tolerant environment.

This, in turn, enhances the nation's global image and attracts international investment, further boosting the economy.

So I really can't see the government decreasing migration levels anytime soon.

The government has a critical role to play in addressing the housing crisis

In my mind, a multi-pronged approach is necessary to tackle the complex housing crisis in Australia.

This approach should include:

1. Streamlined planning and approval processes:

Reducing the red tape and bureaucratic hurdles involved in obtaining approval for new developments could help expedite the construction of new dwellings.

Currently, the process is taking much too long and adding significant costs to new projects.

It can take two years or even longer gain planning approvals as the chronically understaffed council town planning departments play table tennis with the process – with no real interest in the costs they are adding to the final project.

This could involve simplifying zoning regulations and fast-tracking approvals for developments that meet certain criteria, such as affordable housing projects.


2. Reduce government taxes for construction

One forgotten cost in the push for more affordable housing is the level of tax on new construction.

In some new estates, the government take on a block of land – including stamp duty, GST, land tax, development fees and infrastructure charges – which can be as much as 40 per cent of the total cost.

3. Incentives for private developers:

Offering incentives to private developers to build more affordable housing options can stimulate supply.

These incentives can include tax breaks, reduced development fees, or even direct financial support for projects that meet affordability criteria.

The Albanese government said it would deliver 1 million affordable houses over a 5-year period commencing in 2024, but so far I’ve not heard of any progress on this.

4. Encourage property investors:

While in many other countries, the government provides public housing for tenants, in Australia around one-third of our dwellings (around 3 million properties) are owned by mum and dad property investors providing rental accommodation.

But over the last few years, more and more investors are getting out of the market due to rising costs and increasing government interference.

Unfortunately when it comes to renting the emphasis has been on the rights of the renters and not on helping and encouraging the landlords who are exiting the market.

Encouraging property investors to provide accommodation would be one of the quickest and simplest solutions to the rental crisis.

Housing Market

5. Greater investment in public housing:

In my mind, the government has a crucial role to play in increasing the supply of affordable housing options.

Both State and federal governments keep talking about funding social housing but this just isn’t going to eventuate because of the squeeze on government spending.

6. Encouraging regional development:

By promoting the growth of regional centres, the government can help to ease the pressure on housing demand in major cities.

This can involve investing in infrastructure and services in regional areas, as well as offering incentives for businesses and individuals to relocate to these areas.

7. Addressing labour and material shortages:

The government can take steps to address the labour and material shortages that are hampering the construction industry.

This can involve investing in training and education programs to increase the number of skilled tradespeople, as well as supporting domestic industries that produce construction materials.

Building Materials

8. Balanced migration policies:

While cutting immigration could help to reduce demand for housing, it is essential to strike the right balance.

As I’ve explained, skilled migration is an important driver of economic growth, and policies should be designed to ensure that Australia continues to attract the best talent from around the world.

The bottom line

The housing crisis in Australia is not going away any time soon.

There is no quick fix.

It’s a complex issue that requires a multifaceted approach to address effectively and while the government keeps telling us it is concerned about the situation, I can’t see it doing anything to rectify the problem.

The law of supply and demand means that:

  1. The rental crisis will remain for some time yet and rents will keep increasing.
  2. The shortage of good housing will underpin property values for years to come.
  3. Our property markets will remain fragmented - those with higher incomes will be able to afford to own property in our capital city middle ring suburbs where prices will keep increasing, while the less affluent will be pushed further and further out to the fringes of our cities if they can get into our property markets at all.
  4. First-home buyers will have more difficulty getting into the market and will become more reliant on the Bank of Mum and Dad to help them get a foothold into property.
  5. Unfortunately, the wealth gap between those who own property and those who don’t will only keep widening, and that is not good for our society.

About Michael Yardney Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media.

Michael - well written! I think you have encapsulated the situation very succinctly! However the problem is as usual ineffective politians who tell people what they want to hear but don't enable their policies by using effective strategies, common se ...Read full version

1 reply

Thanks for a great article, that captures the issue and some potential paths forward Much appreciated! Regards

1 reply

Your CAPTCHA Code is blocking replies

1 reply
3 more comments...


Copyright © 2024 Michael Yardney’s Property Investment Update Important Information
Content Marketing by GridConcepts