Housing demand driven by surge in overseas migration: AMP

During a time of slowing residential construction and high-interest rates, housing demand in Australia is rapidly rising due to a surge in net overseas migration, according to AMP Bank senior economist Diana Mousina.

However, housing supply isn’t keeping up with that demand, resulting in a housing shortage.

AMP Bank’s Econosights — Australia’s housing shortage report outlined that new housing demand fell in 2020 as net migration “ground to a halt”, however, this AMP's senior economist has suggested this will be reversed in the coming years as demand is due to lift again from the inflow of permanent migrants.

The report stated that housing supply will need “to lift significantly” in order for the country to respond to the high population growth. This will be challenging though, given residential construction is in a downturn due to rising rates and building industry woes, alongside the subsequent hit to borrowing capacity and household excess cash flow along with the end of the government’s HomeBuilder Grant.

For example, Ms Mousina noted that building approvals are 30 per cent lower than a year ago and, as a result, population growth is expected to run “well above completions over the next few years leading to housing undersupply”.

In addition, residential construction is being impacted by construction firms going out of business, amid ongoing supply chain issues, tight labour markets, and an increase in borrowing costs and lending solutions, resulting in a “larger-than-usual” pipeline of residential work that has yet to be completed.

According to the report, the government (especially state governments) have a “big role to play” in addressing this issue.

“Solutions to address housing shortages include lifting the availability of greenfield development, building the right infrastructure (especially transport) outside of the major capital cities to alleviate housing affordability issues which are acute across the major capitals, lowering new approval times and moderating community opposition to new development,” Ms Mousina stated.

Construction and interest rate constraints

According to NAB’s Residential Property Survey Q1 2023, construction costs are the leading constraint on new housing development in Australia, particularly in NSW, Queensland, and Western Australia, while being considered a “very” significant constraint in the country overall.

The survey also indicated that rising interest rates are now being considered a “very” significant restraint on new housing development in Australia, particularly in Victoria, where it is the largest constraint overall.

[RELATED: Construction costs ‘biggest constraint’ for housing development: NAB]