AUSTRALIA’S continues to have one of the least affordable housing markets in the world, due to imbalance between supply and demand. At the same time, weakness in new apartment will expected to extend to 2025, falling to levels seen prior to the boom.
The National Housing Finance and Investment Corporation’s first annual State of the Nation’s Housing 2020 report reveals that the Australian housing market must remove barriers to housing supply and improve affordability to homebuyers.
The report found the pandemic has caused the largest shock to population growth since early last century, triggering a forecast fall in new demand for housing of 286,000 dwellings over the next five years.
Despite the impacts of the pandemic, a recovery in construction activity from the COVID-19 recession is underway – led by detached housing – with total net additions expected to rise to 181,000 in 2021 from 170,000 in 2020 on the back of the monetary and Federal and State Government fiscal stimulus put in place this year.
Federal and state government stimulus is supporting supply by encouraging construction activity in the short term, but the lower demand for new housing is expected over the medium to longer term, with net additions likely to fall and then recover to around 148,000 in 2025. Weakness in net apartment additions will potentially extend to 2025, when 27,000 new dwellings are expected, similar to levels seen prior to the apartment boom.
Despite record levels of residential construction over the years prior to COVID-19, supply outpaced demand by only 4,500 dwellings (on average) for the years 2017-2019. The shorter term period where new supply exceeds new demand can be seen as a catch up for much longer periods of under supply in the earlier 2000s.
NHFIC CEO Nathan Dal Bon said while there have been many challenges during 2020, there has also been a great degree of resilience in the property sector to date.
“Due to historically low interest rates and government stimulus, construction activity and housing prices have held up better than many anticipated.” Dal Bon said.
According to NHFIC, new supply is expected to exceed new demand by around 127,000 dwellings in 2021, and 68,000 dwellings in 2022. Cumulative new supply is expected to be around 93,000 higher than new demand by 2025, although sensitivity analysis demonstrates this could halve with slightly more optimistic population growth assumptions.
“The report makes clear the slowdown in immigration and population growth due to COVID-19 has given us a temporary reprieve from long-term pressures in housing markets,” said Simon Basheer, UDIA national president.
“The beneficial effects of initiatives like HomeBuilder will help stimulate supply in the short-term and produce rates of new housing construction that outstrip demand for the next two years primarily due to the negative levels of overseas migration at this time.”
According to the report, housing demand will inevitably recover and exceed new housing supply between 2023 and 2025, with affordability doe renters and first home buyers likely to collapse if this is not addressed.
“The headline conclusion of the report is that affordability will continue to decline in the long-term without a serious and sustained injection of supply,” said Basheer.
“We need to see a coordinated response from governments that targets the regulatory and tax barriers to boosting housing supply, improving affordability and making home ownership easier.”
A thorough approach from governments to address inefficient planning and approvals systems, as well as excessive taxes amongst other factors is necessary to deliver new housing.
“Accountability should sit at the epicentre of any meaningful effort to fix housing markets, so we would encourage the production of annual scorecards on progress against housing targets,” said Basheer.
“State and local governments also need to accelerate work to overhaul the supply of adequate land, the infrastructure needed to support its development and the pace and cost of planning approvals.
“The other focus needs to be the high tax burden baked into the cost of new housing via endless taxes, charges and levies that are ultimately paid by new homebuyers.
“Identifying these barriers and recommending a pathway to their removal should be a focus of future reports by NHFIC,” concluded Basheer.