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By Adam Hubbard

Is Australia set to miss its ambitious housing targets?

key takeaways

Key takeaways

Australia is facing a severe housing crisis, with the need for more homes becoming increasingly urgent. The federal government aims to build 1.2 million new homes by 2029, but achieving this goal is becoming more challenging due to various issues.

Building approvals have seen a significant decline, with a 9.5% drop in December according to ABS figures. Accelerated construction is necessary to meet the ambitious five-year target.

Rising construction costs and increasing interest rates are dampening demand for newly built properties, making it harder to achieve the housing construction target.

Meeting the housing demands in Australia requires a substantial increase in new home construction. However, achieving the target of 1.2 million homes by 2029 appears increasingly difficult given the current trajectory and challenges faced by the industry.

It's undeniable - Australia is in dire need of more homes to combat our ongoing housing crisis.

The federal government has ambitiously pledged to construct 1.2 million new homes by 2029, but given the deep-seated issues plaguing the construction industry and the escalating housing affordability crisis, this target appears increasingly challenging.

A decline in building approvals

Below PropTrack shows the December ABS figures saw a concerning 9.5% drop in building approvals, a decline from the previous year's figures.

Building Approvals By Dwelling Type

While there's been a gradual recovery since July 2023, the pace needs to accelerate substantially to achieve the five-year target of 1.2 million new homes.

The past half-decade has seen 926,231 homes approved in the private sector, bolstered by the HomeBuilder grant's surge in 2020/21.

In response, the federal government is incentivizing states and local councils with $3.5 billion to expedite new home construction and an additional $2 billion for affordable housing construction and refurbishment.

States are also being lured with $3 billion in performance-based funding to streamline their planning and approval processes.

The construction industry's struggle

However, challenges beyond the reach of financial incentives loom large.

The construction industry, since the pandemic's onset in 2020, has been grappling with soaring building material costs and a persistent skilled labour shortage.

Despite a stabilization in input prices to house construction in the September quarter of 2023, the preceding 16 quarters witnessed relentless increases, beginning from the end of 2019.

Since the pandemic's start, material costs have surged by 32.5%, significantly elevating the overall expense of new housing, according to PropTrack's data.

Input Prices To Australia's House Construction Industry

Compounding these woes, ongoing labour shortages, particularly in finishing trades, and the rising costs of end-stage materials, are driving up construction costs, thereby impacting new approvals.

The cost of materials, stable until late 2020, started escalating as lockdowns and tighter borders disrupted production and transport networks, coinciding with a continuous decline in approvals.

Quarterly Dwelling Approvals Vs Input To House Construction Industry

But it's not just construction costs influencing new home approvals.

Increasing interest rates have dampened demand for newly built properties.

Historical data reveals a clear pattern: higher building approvals when interest rates are low, and a decline as rates rise.

Quarterly Dwelling Approvals Vs Cash Rate

With mounting construction costs and banks tightening their lending, the appeal of new home construction is waning, leading to fewer builds.

This situation poses a significant hurdle in achieving the 1.2 million home target by 2029.

The dual blow of skyrocketing costs and diminishing demand has even pushed a record number of construction companies into administration in the 2023 financial year, surpassing the previous high in 2014.

Looking ahead: the challenge of meeting housing demands

To effectively tackle this housing shortage crisis and ensure a sufficient supply of affordable homes, an extensive number of new properties need to be constructed swiftly.

However, the affordability and appeal of new builds, especially for first-home buyers and those with limited income, have diminished markedly.

Australia urgently needs a substantial increase in new home construction to meet both current and future demands.

Yet, considering the current trajectory and myriad challenges, the goal of constructing 1.2 million homes in the next five years seems increasingly out of reach.

About Adam Hubbard Adam Hubbard is a senior Wealth Strategist at Metropole and his many years of real estate and wealth creation experience gives him a holistic perspective with which he helps his clients safely grow their wealth through property.
1 comment

Thanks Adam, There is little hope for a stepped change in Investors, Builders, and Suppliers to do the heavy lifting for the Government's, can I say Hawke-ish snake oil promise to help win the election, when there continue to be so many road blocks ...Read full version

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