Australia’s Housing Dilemma: Construction Lags as Population Booms

2

Hunter described a “perfect storm” facing the housing construction sector, one that has set the stage for an extended phase of rising home prices and escalating rental costs. She pointed out that Australia's pace of population growth generally surpasses that of many other advanced economies, thus intensifying the need for housing.

"The growing population strengthens the underlying demand for housing over time. Every individual added to the population needs a residence," Hunter explained.

Currently, housing demand vastly outstrips supply with the estimated necessity ranging between 260,000 to 320,000 homes per year. This figure starkly contrasts with the National Housing Supply and Affordability Council’s (NHSAC) recent report, which projects an underlying demand of about 230,000 homes, later dipping to around 174,000.

The imbalance Hunter referenced has pressured rental markets substantially, leading to lower vacancy rates and inflated rental costs. She added, “[...] the last few years have witnessed unprecedented constraints in construction activities. The shortage of materials, fittings, labor, and shipping disruptions extended build timelines significantly.”

Current dwelling approvals per capita are now at a decade-low due to high costs of building materials and stagnation in new housing projects. Hunter elucidated that many participants either delayed or scrapped their projects over concerns about their projects’ financial returns given existing costs.

Housing construction expenses have sharply increased by nearly 40% since late 2019, driven by pandemic-induced supply chain challenges and fierce competition for construction resources across various sectors.

The rising cost of debt only exacerbates the situation. Greater interest expenses on loans used to finance construction projects slow down the pace at which new houses are completed, prolonging the housing supply shortage.

Consequently, the RBA projects a sustained period of low housing construction, continuing Australia's housing crisis. Hunter indicated that demand pressures will continue to drive rents and home prices upward until there’s a notable surge in new housing supply. However, the outlook appears dim as current new dwelling approvals and viability concerns suggest a slow and delayed response.

One glaring critique is the continued overlooking of an immediate, less costly solution: moderating net overseas migration to levels within the country’s infrastructure and housing capabilities.

The latest projections from the Intergenerational Report paint a daunting picture. By 2062-63, Australia’s population is expected to skyrocket to 40.5 million, a rise of 13.5 million people equating to adding three cities the size of Sydney, Melbourne, and Brisbane in just under four decades.

Without addressing migration rates, Australia's efforts to counter the housing supply shortfall may never catch up with population growth. Resetting migration to historical annual levels of around 120,000 could be a crucial step in rebalancing this dynamic.

Published:Friday, 17th May 2024
Source: Paige Estritori

Share this news item:

Finance News

Clear

Trump Mulls Change of Heart on Firing Fed Chair Powell 21 Jun 2025: Paige Estritori US President Donald Trump is once again contemplating the dismissal of Federal Reserve Chair Jerome Powell, whom he has criticized for not lowering interest rates. Trump expressed his dissatisfaction with Powell's decisions in a Truth Social post, suggesting he might change his mind about firing him. Despite acknowledging that his strong criticisms make Powell's task challenging, Trump remains focused on his agenda for reduced rates, especially with Powell's term set to end in May 2026. - read more

APRA Clarifies HELP Debt Considerations in Home Loan Assessments 20 Jun 2025: Paige Estritori The Australian Prudential Regulation Authority (APRA) has released pivotal updates to the Prudential Practice Guide APG 223 and Reporting Standard ARS 223.0, focusing on how Authorised Deposit-taking Institutions (ADIs) should integrate Higher Education Loan Program (HELP) debt into home loan evaluations. The changes are aimed at enhancing regulatory clarity and acknowledging the individual circumstances of borrowers, including the nuances of their HELP debts, without compromising prudent lending practices. - read more

Economic Unrest Spurs Increased Reliance on Financial Advisers 20 Jun 2025: Paige Estritori In the face of ongoing economic turmoil encompassing inflation, market volatility, and other financial stresses, a global survey from Natixis Investment Managers, conducted by CoreData Research, has highlighted a growing trend: investors are increasingly relying on their financial advisers. With 91 per cent of surveyed investors expressing trust in their financial advisers for investment decisions, this highlights an unmistakable shift amidst financial uncertainty. - read more

Global Central Banks Intensify Focus on Gold Reserves 18 Jun 2025: Paige Estritori Recent data from the 2025 Central Banks Gold Reserve Survey indicates a renewed focus on gold among the world's central banks. As these financial institutions adapt to the changing economic landscape, their strategies increasingly involve boosting their gold reserves. - read more

Navigating Private Credit Risks for Australian Retail Investors 17 Jun 2025: Paige Estritori Investment in private credit is not a contemporary innovation; its roots trace back to ancient times. The evolution of direct lending, particularly in the UK, Europe, and the US, intensified across the 18th to the 20th centuries, serving as a crucial alternative during frequent banking crises. The current surge in private lending originated in the 1990s amidst burgeoning internet startups, and was further propelled by tighter banking regulations and historically low interest rates post the Global Financial Crisis. - read more