Australia’s Housing Dilemma: Construction Lags as Population Booms
Australia’s Housing Dilemma: Construction Lags as Population Booms
2
The information on this website is general in nature and does not take into account your objectives, financial situation, or needs. Consider seeking personal advice from a licensed adviser before acting on any information.
In a recent address delivered in Hobart, Reserve Bank of Australia (RBA) Assistant Governor Sarah Hunter highlighted a mounting concern in Australia's housing market: a significant shortage of homes amidst rapidly growing population numbers, largely driven by net overseas migration.
Hunter described a “perfect storm” facing the housing construction sector, one that has set the stage for an extended phase of rising home prices and escalating rental costs. She pointed out that Australia's pace of population growth generally surpasses that of many other advanced economies, thus intensifying the need for housing.
"The growing population strengthens the underlying demand for housing over time. Every individual added to the population needs a residence," Hunter explained.
Currently, housing demand vastly outstrips supply with the estimated necessity ranging between 260,000 to 320,000 homes per year. This figure starkly contrasts with the National Housing Supply and Affordability Council’s (NHSAC) recent report, which projects an underlying demand of about 230,000 homes, later dipping to around 174,000.
The imbalance Hunter referenced has pressured rental markets substantially, leading to lower vacancy rates and inflated rental costs. She added, “[...] the last few years have witnessed unprecedented constraints in construction activities. The shortage of materials, fittings, labor, and shipping disruptions extended build timelines significantly.”
Current dwelling approvals per capita are now at a decade-low due to high costs of building materials and stagnation in new housing projects. Hunter elucidated that many participants either delayed or scrapped their projects over concerns about their projects’ financial returns given existing costs.
Housing construction expenses have sharply increased by nearly 40% since late 2019, driven by pandemic-induced supply chain challenges and fierce competition for construction resources across various sectors.
The rising cost of debt only exacerbates the situation. Greater interest expenses on loans used to finance construction projects slow down the pace at which new houses are completed, prolonging the housing supply shortage.
Consequently, the RBA projects a sustained period of low housing construction, continuing Australia's housing crisis. Hunter indicated that demand pressures will continue to drive rents and home prices upward until there’s a notable surge in new housing supply. However, the outlook appears dim as current new dwelling approvals and viability concerns suggest a slow and delayed response.
One glaring critique is the continued overlooking of an immediate, less costly solution: moderating net overseas migration to levels within the country’s infrastructure and housing capabilities.
The latest projections from the Intergenerational Report paint a daunting picture. By 2062-63, Australia’s population is expected to skyrocket to 40.5 million, a rise of 13.5 million people equating to adding three cities the size of Sydney, Melbourne, and Brisbane in just under four decades.
Without addressing migration rates, Australia's efforts to counter the housing supply shortfall may never catch up with population growth. Resetting migration to historical annual levels of around 120,000 could be a crucial step in rebalancing this dynamic.
Published:Friday, 17th May 2024 Source: Paige Estritori
Please Note: If this information affects you, seek advice from a licensed professional.
Australia's residential property market is projected to experience a 5% increase in house prices over the next 12 months. This follows an 8.6% rise in 2025, marking the strongest annual growth since 2021. The anticipated growth is primarily driven by demand outstripping supply, a trend observed across all states and territories. - read more
The Australian Prudential Regulation Authority (APRA) has announced new measures to cap high debt-to-income (DTI) home loans, effective from February 2026. This decision aims to curb potential risks in the housing market by limiting the proportion of new home loans that exceed a DTI ratio of six times the borrower's income. - read more
In a move that signals potential shifts in the Australian mortgage landscape, the National Australia Bank (NAB) has announced an increase in its fixed home loan rates by up to 0.40 percentage points. This adjustment comes as the banking sector braces for a possible cash rate hike by the Reserve Bank of Australia (RBA) in February 2026. - read more
Welcome to the digital age, where online loans in Australia offer convenience and accessibility like never before. With a few clicks, financing for your next big purchase or consolidation of existing debts is at your fingertips. However, venturing into the world of online lending without a compass can leave you navigating choppy waters. - read more
Personal loans are a type of financing option that individuals can use to fund various personal expenses. Unlike mortgages or car loans, they aren't earmarked for a specific purpose, giving borrowers more flexibility in how they use the funds. These loans are usually unsecured, which means you don’t have to provide collateral to borrow money. - read more
Personal loans are a type of unsecured credit that allows individuals to borrow money for various personal expenses, including consolidating debt, making home improvements, or funding significant life events. Unlike secured loans that require collateral, personal loans rely on your creditworthiness, making them an accessible option for many Australians. - read more
Knowledgebase
Balloon Payment: A large payment due at the end of a balloon loan, usually after a series of smaller payments.
