Housing supply promises built on shaky foundations

I don’t know about you, but I am losing count as to how many new homes the federal government is promising to help build over the next five years.

At the time of writing, it is up to 1.2 million – or 240,000 per annum – between 2024 and 2029. This was one million new homes only a month or two ago.

Now the Albanese government will give the state and territory governments $15,000 every time one of these 200,000 new target homes is built. 

The federal monies in the space – at present – is limited to $3 billion.

This will apparently help solve the rental crisis and supply more affordable housing.

Oh groan! Let’s unpack this a bit, shall we?  And it is all about demand and supply.

Source: Matusik. ABS + Federal Treasury. Financial years.

Elevated housing demand

The demand for new homes is likely to be elevated. 

Why? Because there is higher annual level of population growth planned over the next five to ten years, and probably longer.

Assuming this population growth eventuates – and despite growing dissention about the current and planned immigration intake – it is very likely, due to strong economic and geopolitical reasons, there will be a need to build some 230,000 new homes each year over the next five years.

When taking a decade long view, the new housing need is just under 210,000 new homes per annum.

Supply seriously impeded

The current new housing market is undersupplied, by my reckoning, by the tune of some 100,000 dwellings.

The federal government has visions of helping supply some 240,000 new homes each year, from fiscal 2024 to 2029.

The following charts show that it will be very hard, if not impossible, to supply over 200,000 new homes, on a consistent basis, over the next five to ten years.

Source: ABS + Matusik estimates. Financial years.

I doubt we will see an early election. Nor will there be a rent freeze or any rental controls. 

Labour and The Greens have negotiated a higher annual housing donation to the states and territories over the next five years, so instead of $500 million per year – as currently planned - it might be $1billion in fiscal 2024, $750 million in 2025, etcetera, tapering back over time.

This will do little to help new housing supply, especially when it comes to affordable housing, homes that most people need or even available residences.

Groaning under weight of expectation

The proposed $15,000 transfer per new dwelling start from the federal coffers to the states will also have some heavy caveats, like the need to use unionised labour for construction. 

Foreign Investment Review Board (FIRB) regulations are also likely to remain lax, allowing overseas buyers to purchase off-plan or newly constructed homes in Australia.

This - coupled with the overarching current mindset that higher density living is some form of magic panacea - will see much of this federal government largesse go towards high-rise apartment builds. 

Some of these new builds will be in the build to rent space, but much will be built to sell.

On average - and when excluding the Covid-19 period - over the past five years, between a third and half of new high-rise apartments were sold to overseas interests, and many of these – roughly 40 per cent - are locked up.

History is likely to repeat.

Groan!