Migrant influx and costs fuel housing shortage
The home building industry can’t keep up with the rise in demand for shelter that’s been exposed by a population surge that has caught governments and planners on the hop.
Stronger than expected migration, higher mortgage costs and a squeeze on construction could produce a 175,000 shortfall in new homes over the next five years, with former treasurer Wayne Swan warning that the “perfect storm” in housing is a handbrake on growth and driver of intergenerational inequality.
Only weeks after releasing its flagship market report, the National Housing Finance and Investment Corporation has revised its forecast supply shortage, as a record two-year rush of 650,000 migrants stokes demand and inflates rents, while the housing industry struggles to build more homes amid exorbitant materials costs, labour shortages, rising interest rates, bad weather and business failures.
The Australian Bureau of Statistics reported on Wednesday the price of new dwellings rose by 11.1 per cent in the year to March, with rental inflation running at 4.9 per cent over the period, the highest annual rise since 2010.
Rents in Perth rose by 7.6 per cent and by 7 per cent in Brisbane over the 12 months to March. Rents make up almost 6 per cent of the consumer price index’s basket of goods and services.
The Reserve Bank has said the sharp increase in population was one of the new factors that could lead to another rise in interest rates “as this could put significant pressure on Australia’s existing capital stock, especially housing, which would in turn manifest in higher consumer prices”.
NHFIC chief executive Nathan Dal Bon said the nation was “facing extraordinary pressures on housing affordability for both homeowners and renters, with the past year seeing the strongest and fastest synchronised upswing in rents” across major capital cities in the past two decades.
News of the housing crunch came as Anthony Albanese lambasted the Greens’ intention to block in the Senate Labor’s proposed housing funding vehicle.
“If the Greens vote against the $10bn Housing Australia Future Fund, they are voting against $10bn of investment into social and affordable housing,” the Prime Minister said.
Greens leader Adam Bandt has called for a freeze on rents and is demanding the federal government phase out negative gearing and abolish the 50 per cent capital gains tax deduction for investors.
Cbus Super chair Mr Swan told an NHFIC event in Sydney on Wednesday that there was a “perfect storm in the housing market which is a handbrake on growth” and “a source of growing intergenerational inequality”.
He said boosting housing supply and reducing infrastructure pressures was crucial to securing community consensus on high migration, “particularly at a time when we need skilled workers as we decarbonise and reindustrialise” the economy.
The ALP president and chair of Cbus, one of the nation’s largest superannuation funds, said there were opportunities for institutional investors in social and affordable housing, which had been underfunded for years to the detriment of younger workers.
According to NHFIC’s research director Hugh Hartigan, the surprise two-year migration surge, due to the return of foreign students, working holiday makers and temporary workers, will effectively “front-load” demand for another 69,000 new homes this financial year and next.
Based on Treasury’s annual population statement in January, the federal government’s key housing adviser had earlier this month forecast a cumulative shortfall of 106,000 new dwellings in the five years to 2027. The gap between expected demand and supply is now 175,000 homes.
Mr Hartigan said the anticipated rapid growth of lone person households, as well as a preference for larger homes post-pandemic, would put greater pressure on housing supply
Stockland chief executive Tarun Gupta said the time taken for his company to build a new home had doubled to 32 weeks because of supply snarls for materials and a difficulty in finding building trades workers.
He said increasing the supply of private housing on its own would not solve Australia’s affordability crisis.
“It requires action across the entire housing continuum – from investment in social and affordable housing, build to rent and shared equity to the sale of private houses – and diversity of product to suit people’s lifestyles and life stages,” Mr Gupta said.
“It is between these two ends of the spectrum that we need to be focusing more; to rethink existing models and consider how we can move people from social housing, to supported rentals and affordable housing, and eventually to private housing.”
NHFIC’s Mr Hartigan said the nation could experience “the largest uptick in net overseas migration since the years following World War 2, both in absolute terms and as a percentage of the population, barring the mining boom”.
“The speed of this return has caught Australia’s rental markets off guard given migrants typically rent before they buy when they arrive in Australia,” he said.
“While this will be helpful in addressing Australia’s skill shortages, the increase in net overseas migration estimated by the ABS at more than 300,000 over the year to September 2022, would put further pressure on Australia’s rental markets.”
The migration surge has surprised the housing industry and policymakers, with Jim Chalmers saying higher population growth would be a key parameter in the May 9 budget, which “will be focused on the most vulnerable”.
At its meeting in April, the RBA board decided to keep its cash rate steady at 3.6 per cent but noted that “the net effect of a sudden surge in population growth could be somewhat inflationary for a period”.
The RBA also said because of the population rise, “it was possible that housing prices would stabilise earlier than previously expected and at a level above the previously forecast trough”.
Given improved auction clearance rates, very strong population growth and a recent lift in prices, ANZ economists on Wednesday upgraded their housing price forecast, noting most of the weakness in home prices was behind us. “We now expect capital city housing prices to end this year unchanged before a modest rise in 2024,” ANZ’s Felicity Emmett and Adelaide Timbrell said.
“Low levels of supply and stronger than expected demand look to have trumped the impact of higher mortgage rates over recent months.
“Even before the rush of new arrivals, the pandemic had already driven housing demand sharply higher with the average number of people per household falling to a record low.”
Commonwealth Bank economists expect annual rental inflation to rise to 7 per cent by the end of the year, even as the rate of headline inflation subsides.
“A shift in household formation dynamics towards smaller household size as a legacy of the pandemic followed by a surge in net overseas migration are the two dominant factors on the demand side,” they said.
“The supply of new dwellings has been impacted by the rapid increase in the cash rate, increasing prevalence of short‑term rentals and a longer term shortage of completed dwellings.”
Using a proxy measure of demand and supply, CBA economists estimate demand is currently outstripping supply by about 150,000 dwellings.
On Thursday, Home Affairs Minister Clare O’Neil will release the findings of the Migration Review, headed by former top public servant Martin Parkinson.
Last month, The Australian revealed net overseas migration would reach a two-year total of 650,000 over this financial year and next.
More Coverage
Hypocrisy, bad taste and other follies of 2024
On New Year’s Day 2024, morale was relatively high since the Year of the Dragon was expected to usher in a time of rational thinking. Not quite how it worked out.
Dutton nuclear plan ‘economic madness’
Jim Chalmers has fired the first salvo in what is likely to be a sustained campaign of economic attacks by Labor on Peter Dutton’s nuclear plan, to be driven by the Treasurer himself.