Shortage Continues

The chronic housing shortage that we’ve been hearing so much about lately is getting worse – and will continue to get more and more serious. Three major measures of the supply of homes, both for purchase and for rent, are heading in the wrong direction for a nation that needs solutions from our politicians. Building approvals continue to fall when the nation needs them to be rising, loans for the purchase of new dwellings are also heading in the wrong direction, and vacancy rates continue to go lower, when the one-third of households that rent need them to rise to take the pressure off rents. And what are our state and federal governments doing to solve this crisis? Well, collectively, they’re making it worse.  They keep passing laws that make owning an investment property more and more onerous, causing growing numbers of owners to sell, thereby reducing the rental pool and making vacancies worse. They also keep adding to the costs of creating new homes, which makes it harder for the building industry to provide the new supply the nation needs. The Federal Government has set the grand target of 1.2 million new homes over five years but, as is so often the case with politicians, they haven’t thought much about it beyond the press conference. When the Government says it’s going to build 1.2 million new homes, what it really means is that it hopes the building industry can somehow deliver its target - without actually having any policies to address the problems which will mean this grand objective is unattainable. All the latest data shows how far behind we are in terms of achieving this goal. Currently, the production of new dwellings in Australia is the lowest it has been in 12 years. Approvals to build new houses showed an almost 10% decline in January, compared to December. Seasonally adjusted, the January numbers were the weakest since June 2012. In the past 12 months, there have been approvals to build 101,000 new houses, the lowest in more than a decade. The ABS data shows that new house approvals have fallen in four of the past six months – and there is a clear pattern of decline in new homes at a time when we need it to be picking up. Meanwhile, the Housing Industry Association says that the number of loans issued for the purchase and construction of new homes fell by 4.2% in January and remains at its lowest level since 2008. HIA Chief Economist Tim Reardon says lending for new homes was at record lows in 2023, and this downward trend has continued into the new year. The trend surprises no one in the housing industry, where there is widespread cynicism about the Federal Government’s grand announcement, without any policy substance to deal with the many issues that plague the home building industry. There continue to be shortages of materials and tradespeople, costs continue to be high, elevated interest rates don’t help and we continue to see building companies go broke week by week. Australia is currently having a boom in infrastructure construction and that has sucked a lot of resources out of home building. State Government and local council meddling with the process continues to cause costly delays and to add to the cost of building new homes, making it increasingly difficult to operate profitably. The weakness in building approvals nationally is being seen at a state level as well. In Victoria, the number of houses approved for construction has dropped to the lowest level for over a decade – with approvals in January the lowest since October 2013 – and this in a state where the State Government had said it would build 800,000 new dwellings in a decade. Victoria has one of the weakest situations in the nation, not helped by having the highest property taxes among the states and territories - with new imposts being imposed in 2024 to further discourage investment and construction. In Tasmania, building approvals have dropped 30% in the past two years. Indeed, in January private sector house approvals fell in all states, including by 17% in Victoria and by 13% in NSW. The third measure of the chronic dwelling shortage is vacancy rates for rental properties, which have been dropping steadily for the past 5-6 years. They were already at historic lows across Australia but the latest vacancy rate data shows them going lower still. The national vacancy rate recorded by SQM Research fell from 1.3% in December to 1.1% in January, with vacancies falling in all eight capital cities. State and territory governments continue to make decisions and pass laws that are detrimental to property owners, causing investors to sell, thereby reducing the rental pool further. Investors owners are already faced with massively increased costs through higher interest rates, increased council rates, rising state taxes, higher insurance premiums and increased maintenance costs. Years of detrimental decisions by governments has created this chronic rental shortage and it continues to get worse. The Victorian State Government is introducing a raft of measures in 2024 which collectively are a major discouragement to property owners – and more and more investors are selling up and getting out of the Victoria. It’s significant that, according to the SQM Research figures, the biggest decrease in vacancy rates was seen in Melbourne, which dropped from 1.5% in December to just 1.1% in January – a massive change in a single month. Another property data source, PropTrack, also puts the national vacancy rate at 1.1% - but a third source, Domain, has an even lower figure – just 0.7% in February, down from 0.8% in January. This is a new record low, according to Domain, which says the mismatch between low supply and rising demand is an ongoing challenge for tenants amid rapid population growth (boosted by overseas migration), a strained construction sector and rising property prices locking people into renting for longer. According to the Domain figures, six of the eight capital cities have vacancy rates below 1%, including just 0.3% in Adelaide and in Perth. All of this information presents a grim picture for the supply of homes, both for sale and for rental, across Australia - and means that prices and rents will continue to increase.