Is Australia’s housing target a pipe dream?

At the time, Prime Minister Anthony Albanese stressed “supply is key” to addressing the nation’s supply crunch, which has inspired a rapid increase in rents and housing affordability to fall to its worst position since the global financial crisis of 2008.

While collective government efforts to meet these targets are supported by incentives, such as the federal government’s $3 billion New Home Bonus, PropTrack economist Anne Flaherty believes there is a “myriad of reasons we are unlikely to see housing supply keep up with population growth over the coming years”.

One of the primary reasons for her scepticism towards the government’s housing target is an issue dating back 12 months ago, when data from CoreLogic the 12 months to September 2022 indicated the most expensive period to build a home.

Even with new data from the research firm indicating soaring construction costs are stabilising, Ms Flaherty stressed it still has “never been more expensive to build a new home”.

“The cost of building inputs into housing construction have surged in recent years and grown at the fastest rate seen since the 1970s,” she explained.

PropTrack analysis found the average cost of inputs into the home construction industry across Australia’s capital cities increased 7.4 per cent in the 12 months to June. This pales in comparison to the 17.3 per cent increase recorded in the same metric a year earlier, but Ms Flaherty warned “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,” she explained.

As a result of the economic whirlwind running through Australia’s construction industry, a large number of construction firms have hit financial hardship. In August 2023, 308 Australian construction firms entered administration or had a controller appointed, according to the Australian Securities and Investments Commission (ASIC).

This is the highest monthly total recorded in over a decade and adds to the 2,213 firms which entered insolvency last financial year, a figure 72 per cent higher than the previous 12 months.

Alarmingly, this current financial year has the number of construction firms entering administration tracking at a higher rate, highlighting the continued troubles such businesses face.

A by-product of the collapse of thousands of Australian home builders has been a reduced trust placed in new home builds, with 36 per cent of Australians looking to buy a property confident in purchasing off-the-plan, down from 45 per cent reported in 2020.

Over that three-year window, the proportion of buyers confident in acquiring a newly built property dropped 5 per cent to 55 per cent.

This indicates a “higher share of buyers favouring existing properties over new” that Ms Flaherty declared “implies a slowdown in demand to buy off-the-plan which can be expected to flow through to the quantity of homes developed”.

Data from the Australian Bureau of Statistics (ABS) indicated this trend is playing out across the country, with the number of new home commencements and completions in NSW down to approximately 48,000 apiece.

Compared to the 2018–19 financial year, when NSW new home completions was at 73,849 and new home commencements was 61,666, the data indicates the state is falling behind on its National Housing Accord target of 376,000 homes from July 2024 onwards.

Tom Forrest, chief executive officer at Urban Taskforce Australia, said the ABS data shows “planning approvals are going backwards”.

In his estimation, “there needs to be a massive change in planning policy and practice to turn this around”.

“Now, more than ever, we need incentives for the private sector, which will need to build 96 per cent of our future housing stock, to deliver the housing that a growing New South Wales needs,” he said.

“Those incentives could come in the form of a faster, more predictable planning system that could be relied upon to deliver a predictable outcome,” he added.

However, certain incentives, such as the infill affordable housing bonus provisions in NSW, have been knocked back. Even if Mr Forrest noted they’re a “step in the right direction”.

This is due in large part to push back from several councils, who he shared “have consistently opposed apartments and density”.

Despite this council knockback, the NSW government is expected to imminently establish the affordable housing height and density bonus, in addition to extensive industry consultation.

Mr Forrest is hopeful these changes to the State Environmental Planning Policy will “make affordable housing more feasible, thus delivering more market housing as well as more affordable housing”.

“This will be an important first step towards turning things around,” he stressed.

In addition to the NSW government, several other states, desperately needing to hit the Housing Accord’s targets increase supply and support the arrival of Australia’s increased overseas migration, have taken initiative on boosting supply.

Mr Forrest shared both Queensland and Victoria have “effectively implemented state government-led assessment and determination processes for large housing projects”.

The Sunshine State will see projects called in on a case-by-case basis by the Minister for Planning, as well as being assessed by the Planning Department.

While in Victoria, projects valued over $50 million will be assessed by the Department of Planning and determined by the state’s Minister for Planning, with a target time frame for the assessment of only four months.

But even with these supply-inducing schemes in place, Ms Flaherty remains dubious about the capacity for the nation to meet the Housing Accord’s targets.

In her estimation, developing such a large volume of homes would be “unprecedented”, given it would require the completion of 240,000 dwellings per year. Even if the world was ideal and market conditions and cost pressures didn’t exist, she shared: “At no point in history has Australia succeeded in delivering new housing at this speed.”

The highest number of new dwellings ever completed in a 12-month period was the 224,000 constructed in the year ending March 2017, while the 10-year average number of dwelling completions is 191,000.

Declining new dwelling approvals, at their lowest level in over decade, indicate this is likely to move lower. Add to this booming population growth, and the slowdown in new home development couldn’t be timed worse.

“Australia has a critical shortage of housing and, if something doesn’t change soon, it will only get worse,” Ms Flaherty concluded.