If you missed my blog this week, I wanted to let you know that the Australian Bureau of Statistics released data this week suggesting that we will build just 163,836 houses this calendar year.
The last time we built so few houses was in 2012 when the Australian population was growing by
.
Fourteen years on, the population is growing by
.
Put simply, we are not building enough to cater to the demand right now.
As a rule of thumb, we need to be building one house for every two new Australians. This means we should be building 300,000 houses a year and yet we’re only building 160,000.
Big shortfall.
Essentially, to put this into further perspective, we are building enough housing for 320,000 new Australians a year. The other 340,000 will effectively be without a house to live in.
Houses – not apartments or townhouses – are most afflicted. According to the ABS dwellings commencement data, there will be just 99,708 houses constructed this year – the lowest in more than a decade.
So, why has it become so hard to build houses?
Currently, we are facing five challenges at the same time which makes it a perfect storm.
- Approvals – housing approvals are sitting at a decade-low. Environmental protection laws and NIMBYism are causing our Councils, State and Federal Governments to conflict with each other and it’s this that is stifling our ability to approve new housing developments.
- Infrastructure – the private builders are competing with the Government for workers. All levels of government are spending .
- Lending (part 1) – it’s hard to get a loan today. To qualify for a loan, borrowers need to be able to demonstrate they can not only service the repayments at today’s high interest rates. They need to demonstrate they could service their repayments if rates increased by 3 per cent, on top of current high interest rates. This is something directed by the banking regulator, APRA (the banking regulator).
- Lending (part 2) – the same lending restrictions noted above apply for developers, which means that fewer developers are qualifying for loans for similar reasons. This means fewer projects being green lit.
- Builders – in addition to the difficulty in finding good workers, the builders themselves are cautious, which is fair enough, given the current climate. Plenty of builders are dealing with PTSD after having to wade through fixed-price contracts during a period of 10 to 20 per cent cost inflation, which ate into their profits and even caused record losses. There are also fewer builders operating with .
If Australia were dealing with any one of the above issues, the impact would likely be manageable. However, suffering from all five has led to the construction of the fewest number of homes in a decade.
We will eventually resolve these challenges.
Our local councils, State and Federal Governments will find a way to cooperate and approve more housing.
The Government will eventually scale back on its infrastructure spending.
APRA will eventually direct banks to peel back their 3 per cent buffers to something like 2 per cent, which was the buffer used for most of the 2010s.
Builders will eventually get their confidence back.
But these things take time, and there will be a lag before it translates into meaningful improvement on the ground.
In the meantime, we’re committed to growing our population by more than the 320,000 people we can feasibly build housing for.
Australian is in a housing crisis. But it’s worth remembering that there is an opportunity in every crisis.
