Overseas migrants coming into Australia have NOT caused the rental shortage crisis, as some have claimed, but they are certainly adding to the problem. The latest population data from the ABS suggests Australia in FY2023 experienced its biggest one-year jump in population, fuelled by a record 518,100 new migrants calling the country home. And that has prompted warnings that the nation’s rental market will remain under pressure for years. The population swelled by 624,100 in 2022-23 – that’s around 1,700 people a day - with 80 per cent of the extra residents occurring in the eastern states – despite the fact the WA had the highest percentage growth during the year. According to the ABS, Victoria’s population grew 181,000 to 6.8 million, while NSW added 172,600 to 8.3 million. Most migrants to Australia moved to four states: NSW took in 174,000, Victoria added 154,000, Queensland gained 84,000 while WA accepted 61,600. The ABS noted temporary visa holders such as international students were the main contributor to the high net migration level. Migration accounted for 83 per cent of total population growth through the year as natural increase – births minus deaths – continued to fall, with the short-lived COVID-19 baby boom well and truly over.  WA had the highest percentage growth, up 3.1%, followed by Victoria 2.7% and Queensland 2.6%.  Those with growth well below that 2.4% national average were Tasmania (up just 0.3%) and the Northern Territory (up 0.9%). The Federal Government says it is overhauling its migration strategy to address key skills shortages across the economy, while at the same time reducing the number of temporary workers in the country to ease population and housing pressures. The rental shortage crisis has been building steadily for the past eight years and has not been caused by this recent upsurge in migration. But high levels of new residents from overseas are certainly adding to the problem, for which the nation’s politicians have no solutions – although the remedies are starkly obvious.   

Population Growth

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 I have often commented that every time politicians make changes that impact the cost of housing, they make it worse, never better.    And it’s happening again.   Changes to the National Construction Code came into effect in Victoria and Queensland on the first of May.    And this is expected to add up to $40,000 to the cost of building a new home - through, among other things, the Code’s new energy efficiency standards.  HIA Chief Economist Tim Reardon said this caused a spike in new home sales before the changes came into effect – and there will a slump in coming months – as home buyers rushed to sign a contract for the construction of their new home before the end of April.  Reardon says New South Wales experienced the same phenomenon in September last year when the state introduced its latest energy efficiency standards, adding significantly to the cost of a new home.   Reardon says: “Additional regulatory costs, such as the Code changes, are one of the causes of the nation’s acute shortage of housing. The changes are intended to achieve energy efficiency and accessibility outcomes, but they also force people out of homeownership and the rental market.  “Ongoing changes to building codes will continue inflating the costs of construction with the next phase of building regulations now open for public consultation.  “If ever there was a good time to stop inflating the cost of home building, this must be it.   “Lowering the cost of delivering new homes to market is essential to achieving the Federal Government’s target of 1.2 million new homes over the next five years, and improving housing affordability across the country.”   Developers have warned that additional infrastructure charges will work against government plans to unlock more newly built homes and will make property more unaffordable for buyers.   AV Jennings chief executive Phil Kearns said about $200,000 of the cost of a new home is tied up in fees and charges across all three levels of government.   Kearns said: “It’s substantial - and now the National Construction Code will add around another $30,000 to $40,000 worth of cost for mum and dad to put up with. We have this government working against itself in trying to create more affordable housing.”   A report by Savills for the Property Council of Australia found planned increases in the next 24 months to two recent infrastructure charges in Sydney — the new Sydney Water Development Servicing Plan and Housing and Productivity Contribution charges — could jeopardise the delivery of almost 190,000 homes in the city’s west.   Modelling in the report found a typical 250-unit apartment development, and a 115-lot greenfield development would no longer be financially feasible - and will be significantly less feasible in 2026 under planned increases.   In NSW, there are currently 15 separate levies and taxes on new housing. The report found that in Western Parkland City – which covers from Wollondilly and Campbelltown to Blue Mountains and the Hawkesbury — 33 per cent of new home costs will be government fees by 2026.    In the Central River City region, spanning the Hills Shire, Blacktown and Bankstown, the figure was 26 per cent.   Kearns said there is also the continued challenge to secure skilled labour on-site, which continues to exacerbate delivery costs.   He said the labour skill shortages, the tax situation, and the difficulty in getting approvals through, are preventing homes from being built.   He said: “Blocks keep getting put in our way.”   Meanwhile, Reserve Bank chief economist Sarah Hunter has warned there is no “quick fix” for Australia’s housing market woes, as developers defer projects due to high costs - sending dwelling approvals per capita to decade lows.   The severe undersupply of homes means house prices and rents will continue to rise as the market fails to keep pace with strong demand for space fuelled by high migration and more people  working from home.   Dr Hunter says: “Demand pressure, and so upward pressure on rents and prices, will remain until new supply comes online.”   She says that, usually, rising prices and rents trigger a surge in new housing supply as investors and developers see opportunity to profit from new builds.   But Dr Hunter says a “perfect storm” of constraints has prevented the construction industry from responding to the current housing shortage. In the current circumstances, many projects are simply not viable.   What it all means is that the shortage will continue for years to come – and the cost of buying or renting homes will continue to rise.      

House Cost Rising

The Federal Government’s latest Budget will go down in history as the “band-aid budget”. Rather than fix fundamental problems and deal with core issues, the Federal Treasurer has thrown cash in various directions, in what looks very much like an election Budget. They haven’t provided solutions to any of the core problems in the housing industry, particularly the rental shortage. There are broken limbs everywhere in the industry - and in other parts of the national body - and the Federal Government has applied band-aids to a few of them. It’s the same in other areas. Rather than pull the necessary levers to bring down power prices, as they promised repeatedly to do at the last election, they are throwing cash at everyone to help with their next power bills. It’s another band-aid. It doesn’t reduce power prices which are a key component of inflation and a serious problem for many businesses. It’s simply a short-term, short-sighted, vote-buying measure that doesn’t address the core problem. But, at Hotspotting, our key focus is on the very important issues in the housing market, particularly the rental shortage and the high costs of buying homes. The Federal Budget repeated the previously announced ambition of building 1.2 million new homes over five years, but did not nothing to address the current rental shortage, nor to deal with housing affordability – something politicians often talk about, but continually make worse with their policies and decisions. The Real Estate Buyers Agents Association of Australia (REBAA for short) summed it up when it commented: “The Federal Budget featured plenty of promises to somehow improve housing supply over the long-term, but failed to recognise one of the most simple ways to remedy the rental crisis.” They were referring to the reality that mum-and-dad investors provide over 90% of the homes that people rent in Australia and they need to be encouraged and incentivised to solve the dire shortage of rental properties – at a time when all the costs of owning real estate have risen. REBAA President Melinda Jennison said the Federal Government had again refused to accept the fundamental role that property investors have long played in the provision of rental housing in this country.  “Again, we have been presented with a variety of measures to supposedly boost housing supply at a time when building approvals and completions are at decade-lows,” Jennison said.  “For decades, property investors have shouldered the burden of providing rental supply for successive governments. However, it's evident that this is no longer the situation. The rental crisis is the end result of this changing dynamic. “The volume of investors currently active in the market is well below where it needs to be to significantly improve rental supply, but the Federal Government still won’t do anything to encourage more investors into the market.” I agree with Jennison when she says that it's surprising that the budget has provided incentives to foreign investors to purchase established Build to Rent developments, but no incentives have been offered to the resident investors who provide homes for millions of renters throughout our country. Aidan Collyer of Collyer Property Investments said the move for foreign investment tax breaks “will price young people who want to invest out of the market”. “This is already an incredibly competitive market, Labor is allowing international investors to make a quick buck at the expense of the great Australian dream,” he said. Elsewhere there have been plenty of critics of the Budget’s response to the nation’s housing crisis – or the lack of it. The Daily Telegraph reported widespread criticism of the Budget’s failure to “shift the dial” on the housing shortage. It said the Albanese government’s much-championed $6 billion pledge to address the housing crisis has fallen flat with the bulk of the money going towards infrastructure and not actual homes. Almost $2 billion has been channelled into a rental assistance scheme, the same amount has been given to charities to build 40,000 social and affordable homes, while more than $1 billion to help states and territories with the construction of roads, sewers, energy and community infrastructure. Despite the cost of building a new house rising more than 50% in the past three years, the Budget did not include assistance to help homebuyers with the cost of buying a property. Everybody’s Home, a national campaign seeking to fix the crisis, said the budget failed to tackle rising housing costs. It said: “The government’s ‘new’ funding for social housing is a repackaging of existing initiatives, offering loans instead of providing real funding, and the continuation of a funding agreement with the states and territories - something the Commonwealth routinely renews for other essential services like education and health.” Everybody’s Home said the increase to Commonwealth Rent Assistance would provide some short-term relief, but was not a lasting fix. And that is the failing of this Budget – it provides short-term relief on a number of issues, but does not provide any lasting solutions. The West Australian newspaper commented that the increases to the Commonwealth Rental Assistance scheme contributes only a pittance to housing costs, with the weekly boost enough to buy only two cups of coffee. The Budget offers a maximum of $12.50 per week to recipients of the assistance scheme, according to analysis by CoreLogic. CoreLogic economist Eliza Owen echoed the comments of many others when she said the Budget missed an opportunity. Yes, indeed, this band-aid Budget is a massive, missed opportunity. It could have provided real and lasting solutions to the rental shortage, to housing affordability and to many other core problems for Australian households – but it failed to do so.

Budget Hopeless

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7 Lessons from the $26Bn Man - With Tyron Hyde

In this podcast episode, we dive into the two different approaches that state governments in Australia are taking to address the issue of rental shortage in the housing market. On one hand, Western Australia (WA) has adopted the carrot approach, offering incentives and encouragement to investors to increase the supply of rental properties. On the other hand, Victoria has decided to take the stick approach, punishing investors with new and higher taxes if they do not comply with the government's desires. The WA government has implemented several measures to encourage investors to bring new supply to the rental market. This includes offering cash incentives to property owners who convert their short-term rental properties, such as Airbnb, into long-term rentals for permanent tenants. They have also relaxed regulations around building granny flats, providing interest-free loans to help builders complete unfinished properties, and offering cash incentives to owners of vacant homes to make them available for long-term rent. In contrast, the Victorian government has scrapped the Victorian Home Buyer program, which was aimed at helping young people get into home ownership. They have instead turned to new and higher taxes on property investors to generate revenue and alleviate the state's debt. However, this approach may further exacerbate the rental shortage in Victoria. It is clear that the WA government's approach is more constructive and will bring new supply to the market, while the Victorian approach may have negative consequences. The WA government has also allocated significant funding towards social and affordable housing initiatives to not only increase supply but also support those in need. So, why are property investors now more likely to buy in Perth and key WA regional markets, while selling in Victoria? The difference lies in the government's actions – WA is encouraging investors, while Victoria is discouraging them. This highlights the importance of government policies and their impact on the housing market. In conclusion, governments have two options when it comes to creating significant change – the carrot approach or the stick approach. In this case, the WA government's carrot approach seems to be more effective in addressing the rental shortage issue, while the Victorian government's stick approach may have negative consequences. Time will tell which approach will yield better results, but it is clear that incentives and encouragement go a long way in creating change. 

Population Growth

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