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New housing supply plunging to decade low - featured image

New housing supply plunging to decade low

Australia is facing a significant decline in new home supply, plummeting to its lowest point in over a decade by 2026,

This drop will exacerbate the challenges in housing and rental affordability, potentially leaving the federal government's ambitious goal of constructing 1.2 million homes by mid-2029 far out of reach.

In the capital cities alone, projections indicate that only 79,000 new homes will be completed in 2026.

Udia Completion Forecast

Source: AFR

This represents a sharp 26% decline from last year, driven by a combination of planning bottlenecks, labour shortages, and skyrocketing material costs.

A recent article from the AFR highlighted a concerning report from The Urban Development Institute of Australia.

The report forecasted a squeeze in housing availability.

This dip in supply, coupled with Australia's booming population, is set to further fuel record-high house prices and rents.

Evidently, to hit that 1.2 million home target, the industry needs to radically upscale its capacity, aiming to build a staggering 300,000 homes between 2026 and 2029.

Colin Keane, who contributed to the report, underscores the criticality of this situation, criticizing the government's lack of urgency in boosting active supply and development.

Luci Ellis, Westpac's chief economist, attributes the construction sector's current predicament not to zoning or approval issues but to the backlog of approved yet incomplete properties.

She highlights the array of production challenges, including material demand spikes across the construction sector.

Meanwhile, Barrenjoey's chief economist, Jo Masters, describes the 1.2 million home goal as aspirational, acknowledging historical difficulties in reaching such a high construction volume.

She points out ongoing obstacles in the construction process, such as the cost of materials, labour shortages, and skill mismatches.

The government isn't blind to these challenges.

Federal Housing Minister Julie Collins cites several initiatives, including a $3 billion new homes bonus and a $10 billion Housing Australia Future Fund, aimed at accelerating housing supply.

State governments, too, are stepping up.

For instance, Victoria is streamlining planning and permitting processes, while NSW is increasing density and height limits to foster more affordable housing.

However, the housing pressure isn't letting up.

Australia's net population gain hit a record 518,000 last year, ramping up demand in an already strained market.

Annual Population Growth V Dwelling Growth Australia

Source: AFR

In the AFR article, Louise Christopher from SQM Research notes the resultant spike in rents, now averaging $614 a week nationally.

And the National Housing Supply and Affordability Council's chair, Susan Lloyd-Hurwitz, called for comprehensive reforms.

From planning to workforce expansion, the industry requires a multifaceted approach to reach the 1.2 million home target.

To make matters worse,  greenfield lot releases are dwindling across major markets, with Melbourne and Sydney seeing significant drops.

Despite this, lot prices are on the rise, underscoring the persistent demand.

At the same time, the unit market shows resilience, with prices growing and completions in Sydney and Melbourne ticking up slightly in 2023.

In the AFR article Charter Keck Cramer's Richard Temlett advocates for more than just interest rate cuts to invigorate the build-to-sell and build-to-rent apartment markets.

He suggests immediate incentives and targeted migration policies to attract skilled construction workers are crucial.

About Greg and his team have successfully built and renovated in excess of 500 homes throughout Melbourne and are showing no signs of slowing down anytime soon. Being a Gold member of the Housing Industry Association and National Kitchen and Bathrooms Association, Greg’s focus is on Continued Professional Development, not only for himself, but his team of industry experts.
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