While the government has committed to increasing housing stock, construction industry headwinds and fast population growth may hamper plans to provide a prompt solution to the housing crisis.
In last year's budget, the Government announced it would subsidise the construction of one million new homes in five years to build up the level of dwellings to meet the growing population and ease the housing crisis.
Further initiatives to increase housing stock were also announced in this year's budget, including an added incentive that could stimulate the build-to-rent sector in Australia and increase new rental properties by 150,000 over the next 10 years.
However, a record pipeline of construction work yet to start, driven by the increased cost of materials and labour could delay the construction of future developments.
The government has committed to increasing housing stock within five to ten years.
And, although these new dwellings will increase the stock of properties, they will still fall short of the number of properties needed to house the growing population. According to the Australian Bureau of Statistics, the population could reach 36.1 million by 2041, an increase of 9.7 million in 20 years.
As a result, the number of households is projected to rise by an additional 4 million, surpassing 13 million.
In the past 20 years, the total number of dwelling units completed was 3.4 million, a mighty sum, but not if you consider that the population has increased by 6.5 million in the same period.
With the population outpacing the number of new dwellings being built, it is no wonder that the supply of houses to buy and rent is so low, rental vacancy rates are so high, and property prices continue to rise.
Migration has also rebounded, post-pandemic, with the largest quarterly net inflow of overseas migrants on record in the September 2022 quarter at 106,000 people.
And according to Treasury estimates there will be an additional 650,000 migrants added to Australia's population over this financial year and next.
Therefore, 150,000 additional rental properties won't cover the new migrants arriving.
Migration is back in a big way - and the housing market will feel the impact. Picture: Getty
A significant increase in housing stock is needed in Australia; however, the construction industry has encountered a number of headwinds over the past few years. The pandemic brought on many. A long period of low-interest rates and government grants for first-home builders created a huge demand for new properties; however, the multiple shutdowns during the pandemic and supply chain issues have caused a backlog that is now affecting future developments. The latest data from the Australian Bureau of Statistics shows that $54 billion in construction work is yet to be done, and $16 billion has not yet commenced.
There was nearly $70 billion in construction work in the pipeline at the end of December 2022, 56% higher than pre-pandemic (March 2020 quarter).
With construction workers occupied with current developments and $16 billion in work still waiting to start, fewer projects are commencing.
The number of private dwellings commenced has dropped 21.9% year-on-year, over 5,000 fewer dwellings than in the December 2021 quarter.
Additionally, there are fewer construction companies in the marketplace than pre-pandemic, as many have succumbed to the pressures of the challenging environment.
According to Australian Securities and Investments Commission construction industry insolvencies over the three quarters to March were 1601, a third of which have happened within the first three months of 2023.
And the construction industry has been the hardest hit by insolvencies, making up 27%, of total insolvencies so far this year.
This has affected the number of new dwelling unit approvals, which were down 17.3% in March 2023, compared to March last year, and have been trending downward since the peak in March 2021, fuelled by the Home Builder Grant.
Lower approvals are flowing through to a lower number of dwellings for buyers to purchase.
New development listings on realestate.com.au are down 13% from their peak in November 2020. The number of properties available does not provide significant choices for the high demand in the marketplace.
With the government's commitment to build more dwellings over the next five to ten years, a significant increase in new construction approvals and commencements is needed.
However, with fewer construction companies in the marketplace and the rest already overwhelmed by a backlog of work and increasing material prices, new approvals are already lower than they would be without the additional one million homes and 150,000 rental properties promised.
Not only that, but even with these additional dwellings, it is unlikely to meet the demand for housing.
The National Housing Finance and Investment Corporation has projected that the number of new homes built over the coming five years would be 106,300 short of what was required to keep up with demand, including 62,300 fewer apartments than needed.