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Prime Minister Anthony Albanese’s plan for Australia to build 1.2 million homes over five years to reduce the national housing shortage has been deemed unachievable because it has never been achieved before.
Record immigration is fueling Australia’s housing crisis, with prices in capital cities among the least affordable in the world and rents soaring 16 per cent in the past year alone.
House prices have soared by double digits 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 will only deteriorate further, with Treasury predicting 1.5 million migrants will settle in Australia in the five years to June 2027.
More than 400,000 migrants moved to Australia in the year to August, significantly higher than the 315,000 predicted for 2023-24 in May’s budget.
Rather than reducing immigration to more manageable levels, Mr Albanese in August announced a plan for Australia to build 1.2 million “well-located new homes” over five years, starting July 1, 2024 .
The target was set by the National Cabinet of mainly Labor prime ministers, lobbying states to change planning laws which give local councils the power to stop building projects high rise at the request of existing owners.
Prime Minister Anthony Albanese’s plan for Australia to build 1.2 million homes over five years has been deemed unachievable because it has never been achieved before (he is pictured center with the NSW premier South Chris Minns and Housing Minister Rose Jackson)
1. Never been done
Nerida Conisbee, chief economist at the Ray White Group, said the plan to build 1.2 million homes by mid-2029 is unlikely to happen.
“We have never built so many homes in a five-year period and unfortunately we are already off to a bad start,” she said.
The closest achievement in Australia over a five-year period was the construction of 1.05 million homes between 2015 and 2020.”
This period coincided with the cracking of high-rise buildings, as private certification bodies gave approval to projects that were later found to have structural defects.
2. The evaporation of Chinese capital
Ms Conisbee noted Chinese capital was plentiful the last time Australia built more than a million homes in five years, with foreign buyers snapping up high-rise apartments near central business districts.
“This is a period in which we have seen the largest influx of Chinese capital on record and thousands of apartments have been built in our CBDs and near universities,” she said.
“The Chinese capital has largely evaporated and there is nothing as significant to replace it.”
The Covid lockdowns were a game-changer, with housing completions falling from 57,167 in the September 2018 quarter, at the height of the construction boom, to just 41,669 in the June 2023 quarter.
This represents a decline of 27 per cent over five years, according to construction activity data from the Australian Bureau of Statistics.
Unit approvals also fell, from 23,137 in March 2021 to 13,144 in September 2023, a 43% drop in just over two years.
3. High construction costs
Builders are facing higher costs for materials, with CoreLogic’s Cordell Construction Cost Index showing an 8.4 percent increase in component prices over the last fiscal year.
But in 2022, the increase was even bigger, at 11.9%, the largest since the Goods and Services Tax was introduced in 2000.
Ms. Conisbee said that although rising construction costs have moderated slightly since then, unemployment remaining low at 3.6 percent means labor costs will likely remain high.
“A second challenge is high construction costs,” she said.
“Although price increases have eased as construction material costs have fallen, it will take some time to ease labor shortages.
“Unemployment is still very low and sectors like construction are experiencing some of the biggest shortages.
Nerida Conisbee, chief economist at the Ray White Group, said the plan to build 1.2 million homes by mid-2029 would be unlikely to succeed because it had never been done before.
Builders are facing higher costs for materials, with CoreLogic’s Cordell Construction Cost Index showing an 8.4 percent increase over the last financial year (pictured, homes under construction in Oran Park , in the south-west of Sydney).
“There are also too few construction companies and, again, it will take time to resolve this problem.”
Higher construction costs are leading to a wave of construction company collapses as they cannot complete contracts at the contractually agreed prices.
Australian Securities and Investments Commission data shows 721 companies were placed into administration in September 2023, more than double the September 2021 total of 314.
Economic implications
The housing shortage is making life harder for renters, as the Reserve Bank’s interest rate rise in just over a year strains the finances of those with mortgages.
House and unit rents in the capital rose 16 per cent in the year to October, according to data from SQM Research.
Sydney, the destination for much of the overseas migration, saw its median house price rise 10 per cent in the year to October to $1.397 million.
Data from CoreLogic also showed a 12.1 percent rise since January, highlighting that the market bottomed out earlier this year and has since supercharged itself, rising for nine straight months.