Real Estate News

REIA welcomes State of the Nation’s Housing Report

The National Housing Finance and Investment Corporation (NHFIC) has released its first flagship report producing five-year projections for housing supply and demand across Australia’s major cities and regional areas.

The State of the Nation’s Housing 2020 report assesses the number of new households that are expected to form (new housing demand) over the next five years, the number of new net dwelling additions expected to come on-line, and annual balance of new supply and demand, while also assessing housing affordability.

NHFIC’s flagship report, which will be undertaken annually, found:

  • The global COVID-19 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 4500 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.
  • 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.
  • Should international borders open sooner than expected, with migration resuming and more Australians returning home, coupled with potentially constrained housing supply, any cumulative excess supply over a medium-to-longer term horizon is anticipated to be negligible.
  • Projections suggest rental affordability will improve out to 2022, particularly in more densely populated eastern seaboard cities, as there are fewer households forming to soak up new supply. With new supply expected to exceed new demand over the near term, there is likely to be downward pressure on rents in Sydney and Melbourne where vacancy rates are higher which could improve overall rental affordability, although the real impact will differ across geographies and household income distributions.
  • First home buyers have been taking advantage of the recent easing in dwelling prices, low interest rates and government stimulus, accounting for more than 40 per cent of total new housing loans—10 percentage points higher than the long-term average.
  • Supply needs to remain responsive to an expected rebound in demand. Longer-term trends of declining affordability, particularly for low-income households in the private rental market and the ability for prospective first home buyers to transition to home ownership are likely to persist, particularly if supply is not responsive to demand when it recovers.
  • Housing affordability has deteriorated substantially in some cities over recent decades. NHFIC analysis shows households in the third income quintile living in the greater Sydney region can now only afford 10 per cent of properties, compared with 25 per cent in 1998.
  • A lower period of housing demand due to the global pandemic presents an opportunity to revisit housing policy frameworks – particularly planning frameworks – to ensure that policies can accommodate future population growth without adverse consequences for affordability.

NHFIC CEO Nathan Dal Bon said the first flagship report from NHFIC’s research team is an independent and comprehensive report producing detailed projections that shed light on the state of the nation’s housing market.

“While there have been many challenges during 2020, there has also been a great degree of resilience in the property sector to date,” Mr Dal Bon stated.

“Due to historically low interest rates and government stimulus, construction activity and housing prices have held up better than many anticipated.

“COVID-19 has changed the way we live and work with implications for housing demand, supply and affordability across all of Australia’s housing markets.

“We look forward to continuing to build our knowledge and our understanding of these issues to produce work which helps to inform policy discussions and improve housing outcomes,” Mr Dal Bon said.

The Real Estate Institute of Australia (REIA) has welcomed the National Housing Finance and Investment Corporation’s (NHFIC) first State of the Nation’s Housing Report.

REIA President, Mr Adrian Kelly said this is the first assessment of housing demand and supply across Australia since the National Housing Supply Council (NHSC) was abolished at the end of 2013.

That report provided valuable information to government policy makers and to industry.

“Since the abolition of NHSC, REIA has lobbied government for the establishment of a mechanism to provide reliable data on housing demand and supply in order to formulate appropriate policies and to monitor their effectiveness.

“With housing affordability recognised as a policy priority, it is very pleasing that NHFIC has filled that void with this much needed comprehensive analysis of factors influencing demand and supply and thus affordability.”

The NHSC, in its third and last report in early 2014 reported that the gap between the supply and demand for housing was projected to increase in the future, putting further pressure on housing prices.

It expected a cumulative demand-supply gap of 557,000 dwellings in 2025 and 640,000 dwellings in 2013.

2020 Projections

Mr Kelly noted NHFIC’s forecasts, which reflect the unforeseen circumstances of 2020 and their impacts together with a revised methodology, expect new supply to outpace new demand by 127,000 dwellings in 2021 and 68,000 dwellings in 2022, with cumulative new supply to outpace new demand by around 93,000 by the end of the five-year projection period after demand rebounds in 2023.

He said that as a consequence, affordability, particularly rental affordability, is expected to improve over the next two years.

“Beyond that affordability for renters and prospective first home buyers could deteriorate if supply is not responsive to the rebound in demand,” Mr Kelly said.

“These projections come off the back of REIA’s latest Housing Affordability Report which showed a 10-year high for first home ownership and an overall improvement in housing affordability across Australia and point to a bright spot for those considering entering the market.”

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