Australia is facing a housing shortage of 79,300 homes over the next decade amid slowing home building and rising overseas migration.
New National Housing Finance and Investment Corporation (NHFIC) research has found that 106,000 dwellings were needed over the next five years.
“The rapid return of overseas migration together with a supply pipeline constrained by decade-high construction costs and significant increases in interest rates is exacerbating an already tight rental market,” NHFIC CEO Nathan Dal Bon said.
“NHFIC analysis shows housing affordability and supply are likely to remain challenging for some time, underscoring the need for a holistic approach to mitigate the housing pressures Australians are facing.”
The opening of Australia’s borders in early 2022 led to a much stronger than anticipated recovery in population growth. The Centre for Population expects net overseas migration to increase by 268,000 between 2022 and 2024, with recent data suggesting this could be considerably higher.
The rapid return of population growth is coinciding with the fastest increases in interest rates for several decades, undermining residential construction feasibilities and weakening the pipeline of new housing.
Strong demand for housing coupled with tight supply of both labour and materials, and bad weather, has put significant pressure on the construction industry.
Approximately 28,000 dwellings were delayed in 2022.
NHFIC’s industry consultation suggests builders were making cost allowances of up to 40% for unexpected delays, up from a more normal 20%.
NHFIC expects a shortage of apartments and multi-density dwellings for rent over the medium-term.
Net additions of apartments and medium-density dwellings such as town houses were projected to be around 57,000 a year on average over the five years to 2026-27, around 40% less than the levels seen in the late 2010s.
In addition to higher interest rates, supply of new housing continues to be impeded by a range of factors including, the availability of serviced land, higher construction costs, ongoing community opposition to development and long lead times for delivering new supply.
NHFIC expects a recovery in supply after 2025-26 on the back of changing macroeconomic conditions and stronger underlying demand.
Master Builders Australia CEO Denita Wawn said the report is more evidence that we are falling well short of the 200,000 homes needed each year to keep up with demand and address housing affordability challenges.
“Rising interest rates and declining sales for new home construction is weakening the pipeline of new housing, which is compounded by a stronger than anticipated recovery in migration,” Wawn said.
“There is fragility and volatility in the industry at the moment that has been a consequence of businesses working predominantly with fixed price contracts that were set pre-covid.
“The industry has been relatively resilient over the last decade. Some of the insolvency data we are seeing coming through is a reflection of the challenges over the last 18 months, and we hope the worst is behind us.”