Is Australia Building Enough Homes To Meet The 1.2 Million Target?

In This Week’s How's The Market | Edition 77

Is Australia Building Enough Homes To Meet The 1.2 Million Target?
The Sub $700k Market Continues To Be The Hottest Market
“Falling Sales Puts Pressure On RBA To Bring Rate Cuts Forward”

The current property landscape in Australia reveals a shortage of properties available for both sale and rent, contributing significantly to the continuous rise in house prices and escalating rents over recent years.

Although the government has communicated its intention to construct 1.2 million homes over the next five years, it is essential to acknowledge that the responsibility for actual construction lies with private developers and builders. Many ongoing projects are currently facing financial and development risks, rendering them financially unviable.

The Australian Bureau of Statistics (ABS) recently released building activity data for the September Quarter of 2023. The data indicates a decline in the commencement of construction for detached houses, with 103,707 houses starting construction in the twelve months leading up to September 2023—a 17.0% decrease from the previous twelve-month period.

Notably, the September Quarter of 2023 recorded a low point, with only 23,058 new houses commencing construction, representing a 21.6% drop compared to the same quarter the previous year. This indicates a significant challenge in meeting the National Cabinet's goal of building 1.2 million homes over the next five years, set to begin around mid-2024.

Tom Devitt, the Senior Economist at the Housing Industry Association (HIA), emphasised the slow initiation of the National Cabinet's ambitious plan since the Reserve Bank of Australia's (RBA) cash rate increase in May 2022. The decline in new home sales, coupled with the cancellation of earlier projects due to rising building costs and reduced homebuyer borrowing power, adds to the complexity of the situation.

Looking ahead to 2024, projections indicate a downturn, with Australia expected to commence construction on only 95,400 new houses—marking the weakest year in over a decade. Multi-unit projects are also experiencing a decline, down by 9.6% in the September Quarter of 2023 to 13,916, one of the lowest figures in recent years.

While there is optimism regarding a recovery in multi-unit commencements, with expectations set at 84,400 in 2024, the total combined commencements for detached and multi-unit housing remain insufficient at less than 180,000. This falls significantly short of the 240,000 per annum needed to meet the National Cabinet's ambitious target.

This will ultimately mean that there will be a continued lack of supply in the housing market for both new builds and rentals in the coming years which may lead to further increases in pricing.

What The Agents Are Saying

The sub $700k market continues to be the hottest market.

I am currently working with a number of clients in the sub $700k market and have frequently been speaking with agents in this price point across multiple regions.

They have all echoed a similar sentiment.

Many buyers are no longer able to afford houses in the areas they want to live and are currently being faced with the decision of looking at units in desirable locations or houses on the far outskirts of the city.

Many home buyers are choosing the units in desirable locations so they can still get to work without an hour or more commute. This has resulted in extreme competition for good units in this market.

An example of this could be seen with a unit I inspected in Carrum last week.

This property came on the market on Tuesday, had two opens on Thursday night and Saturday and had 40+ groups through within this time and 8 offers by Sunday. Offers closed out and the property ended up selling $30k above the top end of the range.

The Wow Factor!

3-4 Marks Court, Harkaway, Vic 3806

1.8 hectares and a contemporary mansion in Harkaway.

Price Guide: $2,300,000 - $2,530,000

When I look at some properties out here, they feel so cheap in comparison to some of the inner city suburbs.

$2.5m is the median price across a lot of inner city markets for a 4 bed 2 bath on 600m2 that may need work.

Yet for the same price you’re getting a much better house on close to 2 hectares 30-min further out.

What do you think?

In The Media

‘Christmas flop’: Falling sales put pressure on RBA to bring forward rate cuts

It’s articles like this that I believe are affecting the housing market today by increasing consumer sentiment. This is because many people are of the opinion that when rates go down, property prices will go up.

Final Thoughts

Whilst the government has made big promises regarding building more dwellings across Australia, they are not the ones who are actually picking up the tools or signing the contracts.

This risk is given to the builders and private contractors who appear not to be taking on as much work as anticipated. This is because the economic landscape is not proving the projects viable.

Considering this and the articles coming out regarding a drop in interest rates being earlier than expected, it seems 2024 - 2025 could show strong housing growth still.

Thanks for reading this far!

We value feedback and if you have any suggestions on what you would like covered in the future please email me at tristan@tomii.com.au

Happy Buying!

Note: This is general advice and does not take into consideration your objectives, situations or needs. Please consider if this advice is suitable for you and your circumstances and speak to a professional before making any financial decisions.

Is Australia Building Enough Homes To Meet The 1.2 Million Target?