Australia’s housing crisis is set to worsen, with the nation expected to experience a shortfall of 106,000 homes over the next five years.
The National Housing Finance and Investment Corporation has today released its third State of the Nation’s Housing 2022-2023 research report and it delivers a sobering assessment of supply and demand.
High interest rates, soaring immigration, poor weather, rising construction costs, tight materials supply and labour shortages will all contribute to the shortfall, the NHFIC said.
Forecasts suggest Sydney will be short more than 10,000 dwellings by 2027, while in Brisbane that number will rise to 12,300.
In total, NHFIC modelling suggests more than 1.8 million new households will form across Australia over the next 10 years, with these households expected to comprise 1.7 million new occupied households and 116,000 vacant properties, such as holiday homes.
The report also found that the increase in interest rates was adversely impacting supply.
Just 148,500 new dwellings are expected to be delivered in 2022-2023, and in 2024-2025 that number is forecast to drop to 127,500.
NHFIC has tipped a shortage of apartments and multi-density dwellings for rent over the medium-term.
Net additions of apartments and townhouses are projected to be about 57,000 a year over the next five years, but this is 40 per cent below the levels seen in the late 2010s.
Already 331,000 households are in rental stress and 46,500 are experiencing homelessness.
NHFIC Chief Executive Officer Nathan Dal Bon said the opening of Australia’s borders in early 2022 led to a much stronger than anticipated recovery in population growth.
“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,” he 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 report also revealed from 2023 to 2032, household formation is expected to be dominated by lone person households (563,600 additional households), followed by couples with children households (533,300 additional households).
Within five years, it is expected lone person households will be the fastest growing household type across the country.
Rental growth and rental affordability varied significantly across and within greater city and regional areas, with rental growth in regional areas now falling after a period of record demand.
Rental growth in major cities such as Sydney and Melbourne are outpacing rental growth in regional NSW and Victoria, which suggests the premium of living in large cities close to employment centres may be returning.
Rental affordability has varied greatly across the country during COVID-19.
In Sydney, rents in several outer Local Government Areas (LGAs) increased more than 30 per cent from early-2020 to January 2023 and more than three times that of some inner-city LGAs.
Outcomes in Melbourne have been more subdued, with more than half of Melbourne’s LGAs experiencing rental increases of less than 10 per cent since prior to the pandemic.
Southeast Queensland has had the largest rental rises, with all 12 LGAs experiencing rental increases of 30 per cent or more.
The Real Estate Institute of Australia welcomed the NHFIC report as another way to highlight the “dire situation” of the nation’s supply and demand imbalance.
“The release of this report is very timely given that a day does not pass without housing being discussed by governments and the public,” REIA President Hayden Groves said.
Mr Groves said the NHFIC analysis showed housing affordability and supply were likely to remain challenging for some time.
“What is needed in this situation is a long-term plan in increasing supply rather than many knee jerk reactions the consequences of which haven’t been analysed by the many proponents,” Mr Groves said.
“These include counter-productive ideas like the abolition of negative gearing and rent freezes.”
Mr Groves said there was ample research to show negative gearing was not driving excessive, unproductive and speculative investment in housing but instead is adding to much-needed housing supply.
“Similarly, the analysis shows that abolishing negative gearing would reduce the supply of rental accommodation and push up rents even more,” he said.
“The Henry Review, released in 2010, recognised that the current tax arrangements placed downward pressure on rents. In 2019 SQM Research, in analysing the then Labor opposition’s policy to abolish negative gearing and change the CGT arrangements, showed that market rents would rise by between 7 per cent to 12 per cent over the period 2020 to 2022.
“The experiment by the Hawke Government to abolish negative gearing for property in 1985 was short-lived only to have it reinstated in 1987.
“ During that period rents increased by 57.5 per cent in Sydney, by 38.2 per cent in Perth and by 32 per cent in Brisbane.
“Freezing rents will similarly lead to a reduction in the supply of rental accommodation and consequent increases in rent as investors flee the market.
“What is needed are evidential measures to increase housing supply, not reduce it.”
Property Council of Australia reaction
Property Council Chief Executive Officer Mike Zorbas said the home deficit was a “grim warning”.
“It reminds us that state, territory and local governments simply have to lift their run rates on housing supply across the market, key worker and social housing spectrum,” he said.
“We also need to urgently move the housing needle by creating the right investment conditions for new build-to-rent housing, purpose-built student accommodation and retirement living communities.
“We need this for our existing population and to continue to attract the skilled migrants and students who support our education sector and bridge the huge gaps in our mining, construction, agricultural and retail workforces nationally,” he said.
Mr Zorbas said the analysis also provided more reason to urgently revive and support the passage of the Australian Government’s legislative agenda on housing, including the Housing Australian Future Fund and the innovative new National Housing Supply and Affordability Council.
“All parties in the Senate also need to give fair consideration to passing the Australian Government’s housing bills, which will boost social and key worker housing around the country,” Mr Zorbas said.