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The plan to house Australia’s growing population is completely unrealistic. Here’s why - featured image
By Greg Hankinson
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The plan to house Australia’s growing population is completely unrealistic. Here’s why

With Australia's population growing rapidly, it makes sense to aim to increase housing supply.

However, the government's plan to build 1.2 million new homes in the next 5 years really doesn't sound realistic.

Here are unfortunately many reasons why housing supply just won't keep up with population growth in the near future.

Let's look at 3 of them...

1. Firstly, it has never been more expensive to build a new home

According to PropTrack, the cost of building inputs into housing construction has surged in recent years and grown at the fastest rate seen since the 1970s.

Annual Growth In Construction Costs

Anne Flaherty, Economist at PropTrack said:

"Over the 12 months ending June 2023, the weighted average cost of inputs into the home construction industry across Australia’s capital cities increased by 7.4%.

While this was well down from the peak growth of 17.3% seen 12 months earlier, it remains incredibly high and well above long term average levels.

What’s more, these input prices don’t take into account the additional cost pressures resulting from higher interest rates, labour shortages, project delays, and increased insurance premiums.

The near unprecedented speeds at which costs have increased have dealt a savage blow to builders who operate using fixed price contracts, and the number of construction companies entering administration is continuing to rise."

Proptrack's data noted that in August alone, 308 construction firms entered administration or had a controller appointed, according to the Australian Securities and Investments Commission (ASIC), the highest monthly total recorded in over a decade.

In fact, last financial year, a total of 2,213 construction firms entered insolvency, up 72% from the previous 12 months.

Number Of Construction Companies Entering Insolvency

To date, this financial year is tracking even higher.

2. Home builders going out of business has made people more cautious about buying new homes

PropTrack highlighted that back in 2020, 45% of those looking to buy a property felt confident purchasing off-the-plan, according to realestate.com.au’s Property Seeker Survey.

This year, that share fell to 36%.

Similarly, the proportion of buyers who felt confident buying a newly built property fell from 60% to 55% between 2020 and 2023.

Flaherty commented:

"With a higher share of buyers favouring existing properties over new, this implies a slowdown in demand to buy off-the-plan which can be expected to flow through to the quantity of homes developed."

3. The development of so many homes over such a short period would be unprecedented

The government aims to build 1.2 million new homes in five years, which means they need to finish 240,000 homes each year.

However, Australia has never managed to build houses at this speed before.

The most houses ever completed in a year were 224,000 in the year ending March 2017.

Over the past decade, the average number of homes completed annually was 191,000, and last year, it fell even lower to 173,000, below the 10-year average.

Furthermore, the decreasing number of housing approvals suggests that this trend is likely to continue going down.

Businessman Calculate The Cost Of Building And Maintaining Home

Flaherty further commented:

"This year, approvals for new dwellings have reached the lowest levels seen in over a decade.

While approvals did rise 7% between July and August, they remained 22.9% down from the same month last year.

With population growth booming, this slowdown in the development of new homes could not be worse timed.

Australia already has a critical shortage of housing and, if something doesn’t change soon, it will only get worse."

About Greg Hankinson 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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