Stark reality of housing shortfall growing more evident
The cost of building new homes is again outpacing inflation and, despite a lift in residential building, a lack of unit development is keeping many Australians out of a home.
“We are warning of the stark realities facing the country; unprecedented levels of homelessness, impossible access to rental accommodation and a growing view that home ownership is a thing of the past.”
Jocelyn Martin, Managing Director, Housing Industry Association (HIA)
“If we are going to solve the housing crisis, we need to build more apartments and make them more attractive for people to invest in - only then will we see a lowering of rental inflation and more homes for Aussies.”
Denita Wawn, CEO, Master Builders Australia (MBA)
“If we don't start (achieving Housing Accord targets) as we intend to finish, we'll be kicking into a gale at the final break - making the job near impossible.”
Matthew Kandelaars, Property Council Group Executive Policy and Advocacy
“Despite the rhetoric and headlines, I’m yet to see anything across the suite of state and federal government announcements that will actually reduce construction costs.”
Max Shifman, CEO, Intrapac Property
“Even if I get the best job possible with a master’s degree from a top university, I still don’t see how I can possibly ever afford a nice house.”
Article author’s son
If there’s one thing everyone in the country seemingly agrees on, it’s that not enough Australian homes are coming onto the market to house the people who live here.
Rents, homelessness and property prices have soared in the past five years.
In the five years since the end of 2019, median advertised rents nationally have surged 48 per cent, going from $420 per week to $620 – staggering growth in such a short period. Every night, roughly 1 in 200 Australians find themselves without a safe, secure or affordable place to sleep.
Since early 2020, house-price growth in the combined regional market, covering all regional areas across the country, has risen 54.9 per cent. It sits at a peak median house price of $657,652. Meanwhile, house prices in the combined capitals grew by 33.6 per cent during the same period, albeit coming in at a higher median of $896,372.
The reactions of state and federal governments have done little to improve the much needed supply of new homes.
Ambitious targets have been set under the federal government’s National Housing Accord but are already falling woefully short.
Just three months into the ‘1.2 million homes by 2029’ national housing target, Australia is already more than 15,000 homes behind schedule, according to seasonally adjusted numbers released Wednesday (22 January) by the Australian Bureau of Statistics.
To meet the National Housing Accord’s 2029 target, 60,000 new homes are needed every quarter. In the September quarter – the first three months since the Housing Accord kicked off on 1 July 2024 - only 44,884 homes were built across Australia.
Over the year to September 2024, the number of new homes commencing construction reached 165,048, well below the 200,000 required.
The Property Council’s Mr Kandelaars was among many expressing alarm.
“Few expected we’d be meeting our ambitious housing target from day one.
“The most urgent priorities are for states and territories to address affordability-killing taxes on new homes, cut red tape to boost productivity and address critical shortages of skilled labour,” he said.
The building industry is doing what it can, but developers realise the money is in new houses and not the apartments that require less land and infrastructure and can house more people.
In the first three months of the National Housing Accord, Australia commenced construction on 43,247 new homes according to the ABS.
This is 4.6 per cent higher than the June 2024 quarter and 13.9 per cent higher than the same quarter in 2023. The strongest growth was in new detached house starts, rocketing 20.5 per cent since June 2024 and up 5.3 per cent over the year to September 2024.
MBA’s Ms Wawn said the increase in overall output appeared encouraging but apartments were the missing piece of the housing puzzle.
“Our performance in apartment construction will be the key to whether we meet the target.
“Apartment construction levels remain too low because the investment appetite is not there.
“Low productivity, labour shortages, costly and restrictive CFMEU pattern agreements, a lack of supporting infrastructure and a high inflationary environment all contribute to project costs not stacking up,” she said.
Construction costs rising again
Construction costs are the other albatross around the neck of the building industry.
Residential construction costs grew 3.4 per cent over the 12 months to December 2024, the largest annual increase in construction costs since the year to September 2023 (4.0 per cent), according to CoreLogic’s latest Cordell Construction Cost Index (CCCI).
Mr Shifman, of Intrapac Property and a former president of the Urban Development Institute of Australia (UDIA), told API Magazine that construction costs are the biggest barrier to making apartment projects stack up.
“Every element of new housing development is much more expensive than it was just a few years ago – land, materials, labour, finance, taxes, development charges and design regulation.
“As long as governments acts as though you can legislate and over-tax your way to housing supply, Australia will continue to fall well short of its housing targets, with apartment development most acutely impacted.
“If we are serious about tackling the challenge in the short-term, we need a reallocation of planning efforts and investment to unlock more, less costly, faster to deliver and more-feasible projects – greenfield land and mid-density townhouses – massively reducing the burden of red tape and slow decision-making along the way.”
He cited the example of Melbourne and the cost of building units there.
“Median unit prices - which range from $480,000 in Melbourne’s West, up to $670,000 in the Inner East, are up 0.8 per cent on average across the year.
“Why are these important? Well, these are a proxy for the price the market expects to pay for a new unit, for which the median is likely to be a two-bedroom apartment.
“Compare those prices with the replacement cost a developer needs to charge for a new apartment in these same areas and there is a 40-50 per cent gap - think a new two-bedroom unit needing to approach $1 million.
“Buyers should pay more for a new dwelling than an old one, just like a new car costs more than a used one, but until that gap shrinks - closer to 20 per cent or 25 per cent - apartment sales will be fraught and new projects won't get built.
“On the flip side, those median house prices - even if lower than they were - still compare very favourably to a new house and land package or larger townhouses in middle-ring areas, so demand will pick up in such projects much sooner than for other forms of housing.
“It again demonstrates why a dogged focus on apartment development as being the solution to housing supply is so fraught - it's all in the numbers.”
Building political consensus
HIA’s Ms Martin said the shortfall was driving up prices, worsening affordability, and placing enormous pressure on renters and families across the country and that the political wrangling had to stop.
“We are set to fall well below the Government’s commitment to build 1.2 million homes over five years,” Ms Martin said.
“In the coming weeks and months, we will be asking both sides to stop politicising housing and consider the pressing challenges confronting Australians and the building industry.”
Taxation policies are playing a major role in driving up costs.
“Taxes now account for up to 50 per cent of the cost of a new home in most major cities.
“Immediate reforms are needed to remove inefficiencies like stamp duty cascading onto GST, which unfairly inflate housing prices and make affordability even harder to achieve.
“Land supply remains another significant hurdle, with a lack of development-ready land stalling housing projects across the country.
“We have hundreds of housing sites ready to go but held back due to inadequate infrastructure.
“The Federal Government must invest in the roads, water, and services needed to deliver these projects.”