Australia needs 215,000 more homes on current trajectory

The Housing Industry Association (HIA) has released a new report in which it suggests that if the nation’s population continues to increase at the current rate of 1.6 per cent per year, and household income remains relatively stagnant, an average of 215,123 homes would need to be built every year until 2050 to reach a balance between supply and demand. This is compared to the “record” 233,544 dwellings built in 2016.

“This is a major problem for policymakers as the current supply of available building blocks in Australia is insufficient to sustain this growth and the inevitable outcome will be to push up the cost of land and therefore the cost of new housing,” HIA’s Housing Australia’s Future 2018 report states.

If income growth increases to the 30-year average of 3.1 per cent — up from the average of 0.7 per cent in the three years leading to December 2017 — and population growth continues on its current trajectory, then HIA estimates that 232,489 homes would need to be built every year until 2050 to accommodate Australia’s growing and ageing population.

This figure increases to 249,855 homes when the present population growth rate is combined with a prospective income growth rate of 5 per cent, which is slightly lower than the 5.1 per cent average achieved during Australia’s biggest resources boom more than a decade ago, according to HIA.

If wages continue to float at its current pace, but population growth comes down to an annual average of 1.3 per cent, then 167,041 homes would need to be constructed every year until 2050; while a 1 per cent population growth rate would require building 131,371 homes per year over the same long-term period.

However, should incomes rise by an average of 3.1 per cent, and the annual population growth rate drops to 1.3 per cent, then 184,407 dwellings would need to be built per year until 2050 to accommodate Australia’s growing and ageing population; while a 1 per cent population growth rate would require the development of 148,737 dwellings per annum to achieve an equilibrium between supply and demand.

In the case of high income growth, or 5 per cent per year, then an average population growth of 1.3 per cent would require the construction of 201,773 homes annually until 2050, which goes down to 166,103 when assuming 1 per cent population growth.

Supply and demand ratio at closest equilibrium in more than a decade

HIA said in its report that the ongoing imbalance between supply and demand for housing since 2002–2003 has contributed to the rapid acceleration in property prices in Australia, and is ultimately the cause of the nation’s housing affordability crisis.

The residential housing industry body further noted that in 2017–2018, the supply and demand for new homes are at the “closest to equilibrium as [they have] been in the last 15 years” on a national level. In 2017, HIA estimated that new dwelling commencements across Australia exceeded 217,000.

“We recognise that the extraordinary volume of new commencements has ensured that, for the first time since 2003, the number of dwelling commencements in Australia is effectively fulfilling the needs of Australia’s growing population,” the HIA report states.

However, the state of equilibrium is not consistent throughout the nation, with markets such as Western Australia and the Northern Territory experiencing significant reductions in building volumes in recent years due to local economic factors.

Earlier this year, it was found that approximately 51,500 borrowers could be at risk of defaulting on their mortgages in the coming year, with over 30 per cent of Australians experiencing mortgage stress, according to finder.com.au’s analysis of Digital Finance Analytics’ (DFA) Household Survey.

The principal of DFA, Martin North, told Mortgage Business that “at risk” borrowers were most prevalent in mining-centred regions across Queensland and Western Australia, and that “severe” mortgage stress could be on the rise in other parts of the nation.

“There are more people currently at risk in Western Australia and in Queensland, which is an outfall from the mining downturn, but we’re also seeing a significant rise in severe stress in Western Sydney, on the outskirts of Melbourne and around Brisbane,” Mr North said.

“Defaults over the next two years are not necessarily going to be centred in the West or in Queensland, but we’re going to see some more significant risks in and around the main urban centres in Brisbane and Melbourne.”

Mr North attributed the increased risk of mortgage defaults to slow wage growth, cost of living pressures and high mortgage repayment costs for borrowers that were issued with home loans prior to regulatory tightening.

[Related: Fresh warnings issued over mortgage stress]