Australia set to fall 200,000 homes short of target

by | Feb 26, 2024

Home Industry Association logoAustralia is set to commence construction on little more than a million new homes over the next five years, almost 200,000 short of the Australian government’s target, stated Housing Industry Association (HIA) Senior Economist, Tom Devitt.

 HIA has released its economic and industry Outlook report, which includes updated forecasts for new home building and renovation activity nationally, as well as for each state and territory.

 “It is possible to build 1.2 million new homes over five years but it will require significant policy reforms. These reforms need to include lowering taxes on home building, easing pressures on construction costs, and decreasing land costs,” said Mr Devitt.

 As it stands, both the detached housing and multi-unit markets are set to recover in 2024/25 from recent decade lows, he said.

 “A cut to the cash rate this year is increasingly uncertain as unemployment remains low and inflation increasingly sticky. The recovery in home building is not, however, reliant on a cut to the cash rate, but a more stable interest rate outlook. Pent-up demand for housing will allow market confidence to grow and buyers to return to the market,” Mr Devitt said.

 “This recovery will, nonetheless, be insufficient to meet government housing targets as long as home building continues to be constrained by punitive taxes and regulations. Punitive tax surcharges on foreign investors are squeezing out precisely the investment needed to help meet government housing targets.”

However, Mr Devitt says that at the same time, recent changes to building codes are likely to add tens of thousands of dollars to the cost of building new homes.

 “More effort is also needed to increase the capacity of the industry. Access to skilled labour from overseas will remain crucial, as will the need to train and upskill our existing workforce. More support for apprenticeships, including maintaining current apprenticeship subsidies, will go a long way in this direction.”

“Reforms in these areas would represent a material upside risk to this housing outlook and could see Australia exceed the government’s target and potentially build sufficient homes to meet demand,” concluded Mr Devitt.

 

Detached house commencements

According to the report, an annual total of 96,250 detached house commencements is expected for 2023/24 – down by 12.6 per cent on the previous year and down by almost a third on the 2020/21 peak. This will mark the trough of the cycle and the weakest financial year since 2012/13. Commencements are expected to remain weak at 97,800 in 2024/25 – which is only a 1.6 per cent improvement – before recovering and exceeding 110,000 by 2026/27.

 

Multi-unit commencements

Multi-unit commencements are expected to total 72,010 in 2023/24 – up by 14.1 per cent on the 63,100 trough and 11-year low in 2022/23. According to the report, the recovery in multi-unit commencements is expected to continue – up by 23.1 per cent to 88,610 in 2024/25 and reaching almost 100,000 by 2026/27 before moderating back to 96,230 by 2027/28.