Prime Minister Anthony Albanese‘s plan for Australia to build 1.2million homes over five years to alleviate the national housing shortage has been deemed unachievable because it’s never been done before.
Record-high immigration is fueling Australia’s housing crisis, with capital city prices among the world’s least affordable, and rents soaring by 16 per cent during the past year alone.
House prices are climbing by double-digit figures in less than a year, despite the Reserve Bank raising interest rates a dozen times since May 2022 – with another increase expected on Tuesday.
The situation is only likely to deteriorate further, with Treasury forecasting 1.5million migrants will move to Australia in the five years to June 2027.
More than 400,000 migrants moved to Australia in the year to August – a level significantly above the 315,000 intake forecast for 2023-24 in the May Budget.
Rather than cut immigration back to more manageable levels, Mr Albanese in August announced a plan for Australia to build 1.2million ‘new well-located homes’ over five years, starting on July 1, 2024.
The target was set by the National Cabinet of mainly Labor premiers, putting pressure on states to change planning laws that give local councils the power to stop high-rise apartment developments at the behest of existing homeowners.
1. Never been done
Nerida Conisbee, the Ray White Group’s chief economist, said the plan to build 1.2million homes by mid-2029 is unlikely to happen.
‘We have never built this many homes over a five year period and unfortunately we are already off to a bad start,’ she said.
The closest Australia came over a five-year period was building 1.05million homes between 2015 and 2020.’
This period coincided with cracking apartment towers as private certifiers gave approval to projects that were later found to have structural faults.
2. Chinese capital evaporating
Ms Conisbee noted Chinese capital was in abundance the last time Australia built more than a million homes over five years, with foreign buyers snapping up high-rise apartments near central business districts.
‘This was a period in which we saw the biggest influx of Chinese capital ever recorded and there were thousands of apartments built across our CBDs and close to universities,’ she said.
‘The Chinese capital has mostly evaporated and there is nothing as significant to replace it.’
The Covid lockdowns changed that with dwelling completions plunging from 57,167 in the September quarter of 2018, during the height of the building boom, to just 41,669 in the June quarter of 2023.
That’s a 27 per cent decline over five years, Australian Bureau of Statistics building activity data showed.
Unit approvals have also plummeted, from 23,137 in March 2021 to 13,144 in September 2023 – a 43 per cent drop in little more than two years.
3. High construction costs
Builders are battling higher costs for materials with CoreLogic’s Cordell Construction Cost Index showing a 8.4 per cent increase in component prices during the past financial year.
But in 2022, the increase was an even more severe 11.9 per cent – the steepest since the introduction of the Goods and Services Tax in 2000.
Ms Conisbee said while construction cost increases had moderated slightly since, unemployment staying low at 3.6 per cent means labour costs are likely to remain high.
‘A second challenge is high construction costs,’ she said.
‘Although the surge in pricing has moderated as building material costs reduce, it will take some time for labour shortages to be eased.
‘Unemployment is still very low and industries like construction are seeing some of the most significant shortages.
‘There are also too few building companies, and again this will take time to resolve.’
The higher costs of building are leading to a spate of construction company collapses as they cannot complete contracts at contractually agreed prices.
Australian Securities and Investments Commission data showed 721 companies going into administration in September 2023, more than double the 314 tally of September 2021.
The housing shortage is making life tougher for renters as the Reserve Bank’s 12 rate rises in little more than a year squeezes the finances of those with a mortgage.
Capital city house and unit rents soared by 16 per cent in the year to October, SQM Research data showed.
Sydney, the recipient of a large share of overseas migration, saw its median house price climb by 10 per cent in the year to October to $1.397million.
The CoreLogic data also showed a 12.1 per cent rise since January, highlighting how the market bottomed out early this year and has since turbocharged, rising for nine straight months.