Hotspotting by Terry Ryder & Tim Graham

November 19, 2024 Building Crisis: 5 reasons why things aren't improving

There are multiple reasons why Australia has a housing shortage and why the numbers of new dwellings needed are simply not being built.

This is something I have spoken about regularly in the past and will continue to do so, as it’s the core issue creating problems for real estate consumers of all kinds – home buyers, investor buyers and tenants.

Here are the latest events and announcements which help to explain why we have a housing shortage with rising prices and rising rents, problems which are not going to be fixed in the foreseeable future …

ITEM 1 – BUREAUCATIC DELAYS: Sydney councils are sitting on backlog of almost 8,500 unresolved development applications and requests for development certificates, according to NSW government data.

There are over 5,000 unresolved development applications across the Greater Sydney area, plus 3,300 active “complying development certificates”.

Five councils each have more than 300 local development applications that are waiting to be finalised. Data from the Department of Planning Housing and Infrastructure lists the Inner West Council as the worst offender, with 456 “active” DAs waiting for a determination.

The Northern Beaches, Hills Shire and Cumberland Councils also have major backlogs.

Thousands more “complying development certificates” are also adding to the backlog, despite being designed to give faster approvals to developments that meet certain requirements.

Some councils are taking more than a year to approve homes. And some developers are waiting up to a decade for projects to be approved.

In my view, one of the core issues is that many councils have a NIMBY attitude to development, especially high-density residential. They simply don’t want developments to be built and do everything they can to frustrate builders.

ITEM 2 – NOT FINANCIALLY VIABLE: In Perth, the rate of apartment completions has dropped to its lowest levels since records began in the 1980s.

A new Property Council report says that, to meet the housing targets set by the National Housing Accord, WA would need to be delivering five times the number of apartments per year that it currently is.

The Sky High report says there are more than 10,000 apartments approved for WA but effectively on hold and unable to be constructed.

The major issue is that projects are just not financially viable – because the cost of delivering an apartment is generally higher than the market is willing to pay, so projects simply don’t stack up. Only luxury apartments are economically viable projects.

The report blames climbing construction costs - driven by labour shortages and competition for labour from government and mining sectors.

The report says: “Developers are reporting that construction cost estimates are now almost double the cost of similar developments five years ago.”

The Property Council expects that costs will climb even higher as the new national construction code and bargaining agreements imposed by government take effect.

This is problem not only in Perth but right across Australia. Developers are scrapping unit projects because the costs are so high, making them financially unviable.

The Australian Construction Industry Forum says it’s a worrying trend for a country that needs more, denser homes – not only apartment towers but medium-rise and townhouse developments in existing suburbs – to tackle the chronic undersupply of housing and to ensure longer-term affordability.

The forum’s Construction Forecasting Council chair and chief economist Nerida Conisbee says: “It’s very, very expensive to build apartments. Many projects aren’t going ahead.”

ITEM 3 – WORKER SHORTAGES: A recent report reveals that Australia needs 130,000 additional workers to combat labour shortages in the construction sector. This has prompted calls for rapid reforms from both federal and state governments to attract and retain skilled labour.

The report says the nation is on track, in 2024, for the worst year in new home builds in over a decade, with an 9 per cent decline in new building starts, totalling just 158,000 when it needs to be 240,000 per year to meet the Federal Government’s fanciful target of 1.2 million new homes in five years.

Construction starts for detached houses have dropped by 10 per cent, while higher-density projects have declined by 6 per cent. If this pace continues, Australia could see fewer than 800,000 new home starts over the five years, leading to a shortfall of over 400,000 homes compared to the National Housing Accord target.

The decline in apprenticeship numbers further compounds this crisis, with completions down 8 per cent and commencements down 12 per cent in the past year.

ITEM 4 – POLITICAL POLICIES: The Housing Industry Association says a home building recovery is possible because buyer demand is rising, but state government housing policies risk stalling the revival.

HIA Senior Economist, Matt King, says demand for new homes nationally is accelerating - largely due to high population growth, low unemployment, stable incomes and the absence of interest rate rises for the past year.

King says activity generally is picking up, but there are big differences across capital city and regional markets. Sydney remains an outlier and there is still no indication of a near-term rebound in residential building in the big city.

King says: “New home building in the Sydney basin remains exceptionally low, primarily due to high land prices and excessive housing taxes and infrastructure charges.”

Australia-wide, the HIA says the detached home building sector looks promising, but the unit sector remains constrained and is unlikely to experience recovery before mid-2025.

King says: “The sector continues to be dampened by skilled labour shortages, business credit constraints and the aftermath of significant building material cost escalation.

“The extent of the recovery in new home building will be determined by the ability of governments to ease the barriers to home building.

“Recent state government plans to increased surcharges on foreign investors and introduce taxes on short-term rental accommodation are unhelpful at a time when stability is needed to achieve the target of 1.2 million homes.”

King says the rate of home building is being slowed down by government failure to implement policies such as expedited land releases, concessions on property taxation, and accelerated development approval time frames.

ITEM 5 – HIGH LAND COSTS: The rapidly prising cost of home sites is one of the biggest barriers to easing the housing shortage.

New figures for South East Queensland indicate that the cost of residential home sites has jumped by as much as $120,000 in a year – up 21 per cent in one LGA where it now costs as much for a block of land as the median home did just two years ago.

This is the City of Brisbane LGA where land prices rose 8.7 per cent in the September quarter alone, pushing the median price of a block of land to $685,000 – which is $3,000 more than what an established home cost in this area in June 2022.

The second biggest annual surge in land prices occurred in the City of Ipswich where the median block rose 15 er cent or by $48,000 to hit $360,000, with the third fastest pace set by Moreton Bay, where prices rose by 10 percent to $415,000.

The cheapest blocks of land in South East Queensland are in Logan City in Brisbane’s south, where a third of SEQ land sales are now occurring – with the median price at $350,000 after a rise of almost 10 percent across the year.

The Gold Coast had the second highest SEQ land price at $619,000, after an 8 percent rise in the past year.

So, you can imagine what a new house on a block of land costs, when the land alone costs well over $600,000 – as it does in the City of Brisbane and on the Gold Coast.

Why does it cost so much? Primarily because of bureaucratic delays, governments taxes fees and charges, and high interest rates – all problems created by our elected representatives.

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