Property industry raises alarm over ‘grim’ housing outlook

The country is set to face a housing supply shortage of more than 100,000 homes over the next five years, according to a report by the National Housing Finance and Investment Corporation (NHFIC).

High interest rates, increased household formation, bad weather, the rising costs of construction and a tight supply of labour and materials are factors which are seen to contribute to the shortfall, the report said. 

For this financial year, the report estimates that 148,500 new dwellings will be added to the national housing stock before falling to 127,500 in 2024–25.

Notably, the most significant decline in housing supply is projected to occur in the apartment and multi-density dwelling sector, with an estimated average of 57,000 net new additions per year over the next five years until 2026–27, representing a 40 per cent decrease from levels seen in the late 2010s.

The concerning figures are seen to bring on more pain for renters, who are already in the grips of a rental crisis. 

The NHFIC estimates that conservatively, more than 331,000 households are already in rental stress — defined as paying more than 30 per cent of their income in rent. Meanwhile, around 46,500 households are experiencing homelessness.

According to the report, rental growth in Sydney and Melbourne has been greater than that in regional NSW and Victoria, indicating a trend of people moving back to large cities near employment hubs after three years of the COVID-19 pandemic.

Between early 2020 and January 2023, rental rates in Sydney surged by over 30 per cent, while those in Melbourne rose by just under 10 per cent. Data showed South-East Queensland experienced some of the most significant rent hikes, with all local government areas experiencing increases of 30 per cent or more.

A surge in migration, which is expected to reach 350,000 as skilled workers and students flock back to Australia at a time of record low vacancy rates is likely to put upward pressure on rents, the report stated.

Adding to the demand pressure is the expected formation of 1.8 million households in the next 10 years, taking the total to 12.6 million from 10.7 million in 2022.

The report highlighted that the construction industry has been under pressure, with tight supply of labour and materials, as well as bad weather resulting in the delay of construction of approximately 28,000 dwellings last year.

The availability of serviced land, rising construction costs, and community opposition to development are also hindering new housing supply.

The report warned that slowing supply of housing, coupled with the expected surge in demand, will lead to a negative balance of available dwellings of 106,300 over five years to 2027, and 79,300 over the 10-year period to 2033.

NHFIC chief executive Nathan Dal Bon, said the rapid return of overseas migration after the pandemic, as well as decade-high construction costs and interest rates, were tightening the screws on an already pressurised rental market.

“Housing markets are now at an inflection point. At a time of returning migration, they are contending with a perfect storm of high inflation and interest rates, slowing supply and record low vacancy rates,” he stated. 

Property industry calls for government intervention to address housing deficit

The Real Estate Institute of Australia (REIWA) said the report showed the “sad state” of the housing market, where Australians remained “the biggest losers”.

President Hayden Groves described the report as “very timely” due to housing becoming a hot button topic not just for the government, but for the public as well. 

With the report showing that housing affordability and supply are likely to remain challenging for some time, Mr Groves reiterated his call for a long-term plan focused on increasing supply rather than “many knee-jerk reactions” that does not include the analysis of housing stakeholders from all levels. 

“These include counterproductive ideas like the abolition of negative gearing and rent freezes,” Mr Groves said. 

Mr Groves argues that over the years, research has shown negative gearing to not be the driving force behind excessive investment in housing, but rather a contributor to much-needed housing supply. 

He cited the Henry Review released in 2010 which recognised that the current tax arrangements placed downward pressure on rents. 

He also referenced a 2019 SQM Research, which analysed the then Labor Opposition’s policy to abolish negative gearing and change the CGT arrangements and showed that market rents would rise by between 7 per cent to 12 per cent over the period 2020 to 2022.

“Freezing rents will similarly lead to a reduction in the supply of rental accommodation and consequent increases in rent as investors flee the market. What is needed are evidential measures to increase housing supply, not reduce it,” concluded Mr Groves.

For Property Council chief executive Mike Zorbas, the report was a “grim warning” on the deteriorating housing supply and is a reminder for all levels of the government to reach, if not raise, their housing targets. 

“It reminds us that state, territory and local governments simply have to lift their run rates on housing supply across the market, key worker and social housing spectrum,” he stated. 

He emphasised the need to “move the housing needle” by creating favorable investment conditions for the development of build-to-rent housing, student accommodation, and retirement living communities to address the housing shortage. 

“We need this for our existing population and to continue to attract the skilled migrants and students who support our education sector and bridge the huge gaps in our mining, construction, agricultural and retail workforces nationally,” he said.

According to Mr Zorbas, the analysis also highlights the need to revive and support the Australian government’s housing legislative agenda, which includes the Housing Australian Future Fund and the National Housing Supply and Affordability Council, as a matter of urgency.

“All parties in the Senate also need to give fair consideration to passing the Australian government’s housing bills, which will boost social and key worker housing around the country,” Mr Zorbas said.

Meanwhile, Housing Industry Association (HIA) chief economist Tim Reardon said the report indicated that the government is set to “fall well short” of their target of building one million homes over five years. 

As the report highlighted, the undersupply of housing is set to worsen as demand continues to outpace supply. He said that “every state and territory need to take action to attract more investment in the housing sector to improve the supply of new homes”. 

In addition to the forecasted shortfall in supply, worsening the already acute rental shortage, Mr Reardon warned that the deficit will result in “unnecessarily high increases in home prices.” 

According to Mr Reardon, the report highlighted  the importance of boosting the number of apartment constructions to meet the growing demand for new homes.

“The imposition of a range of punitive taxes on investors by state governments, combined with additional constraints through the FIRB and diplomatic disputes, has seen investors withdraw from the market. At the same time, the cost of new apartments is set to increase in 2023 with new regulatory costs imposed through building regulations,” he stated. 

The economist highlighted that these regulatory costs are in addition to the increased cost of labour and materials that increased rapidly over the last two years.

“The combination of increased costs and less investment has seen apartment construction slow well below what is needed in a typical year of population growth. But with migration expected to be at record levels in 2023, the shortage of housing will continue to deteriorate,” he stated. 

Ending on an optimistic note, he concluded that the Housing Australia’s Future Fund Bill 2023, that was before Parliament last week will set “a pathway to improving this supply and demand imbalance.”