A new report underlines a massive looming shortfall in the housing market, estimating that Australia will fall nearly half a million dwellings short of the national target to build 1.2 million new homes by mid-2029.
Research commissioned by the Property Council of Australia has projected that Australia will fall about 462,000 homes short of the 1.2 million new homes in well-located areas target agreed by state and federal governments and the building industry.
The study, conducted by economic forecasters Mandala Partners, says that if current regulatory settings continue, only 60% of new homes agreed under the National Housing Accord will be built by mid-2029 when the target period ends.
The Mandala Partners report is one of the most pessimistic assessments of the viability of the Accord’s targets so far.
The details
Mandala Partners believes that, at this stage, a “baseline” of only 738,000 new homes out of 1.2 million is within reach, with the ACT the only jurisdiction likely to meet its new homes target by mid-2029.
Victoria comes next, meeting a predicted 77% of its target of 308,000 homes, with the Northern Territory only on track to achieve about 18% of its 11,000 target.
New South Wales is projected to have the greatest shortfall in absolute terms, falling 185,000 short of its mid-2029 target.
While this is an extremely gloomy prognosis, Mandala Partners has come up with some interesting research on how the current housing crisis could ease dramatically if, by some miracle, the targets were met.
Cheaper rents
If 1.2 million new houses WERE built by mid-2029, Mandala Partners estimates that, nationally, rents would fall on average by $90 a week, with the greatest savings in New South Wales ($130/week) and the Northern Territory ($220/week), as the greater availability of homes would drive down prices by reducing competition in the rental market.
Across the country, that would see over seven million renters collectively saving $253 million each and every week.
Slower home price growth
The report also found that overcoming that huge projected 462,000 shortfall of well-located dwellings by mid-2029 would moderate home price growth by -0.2% on a compound annual basis in weighted national average house prices in well-located areas through to 2029.
For example, if New South Wales overcomes its forecast deficit of 185,000 homes by 2029, house prices are predicted to undergo an average compound annual decrease of 1% per year.
By mid-2029, that’s predicted to adjust home prices in New South Wales back to February 2024 levels.
In Victoria, the compound annual growth rate is expected to decrease by 1.5%, but faster price growth would see overall prices continue to grow at 1% per annum, even if the shortfall of 71,000 homes is overcome.
Mandala Partners also calculates constructing 462,000 additional homes would contribute $128 billion in extra economic activity and support 368,000 jobs.
Achieving the seemingly impossible
To help meet the ambitious (many would say “unrealistic") National Housing Accord targets, Mandala Partners says the New Homes Bonus, a $3 billion Federal government reward program for jurisdictions that build more homes than their share of the housing target, should be doubled.
There should also be changes to the way the program is implemented, with incentive payments made to well-performing jurisdictions along the way - not just reward payments based on final outcomes.
The Property Council’s Chief Executive, Mike Zorbas, says reworking the New Homes Bonus scheme would give “a shot in the arm to our ambitious housing target” at only what he terms “a minimal cost” to the Federal Budget.
“The scheme should be extended to seven years with upfront payments to support long-term reforms,” Mr Zorbas says.
“Its value should increase to $6 billion, with unspent funds reserved for future housing initiatives.
“That increase would be just 0.1% of the Australian Government’s 2024/25 Budget.
“We also need to improve the scheme's transparency through public reporting and highlighting best practice to ensure accountability.”
The problem
It’s only then that Mr Zorbas gets to what’s essentially the crux of the problem and the real reason that the 1.2 million new homes target will never be met.
“Three in ten dollars a buyer spends on a new home is governments’ taxes.
“Any Federal boost would need to be matched by changes to gouging state and territory tax regimes and planning systems to support the delivery of new homes,” he says (my emphasis).
Any suggestion that state and territory governments give up some of the enormous tax windfalls they raise through stamp duty and other property taxes in return for relatively minor Federal government incentive payments is, frankly, laughable.
State and local governments are addicted to property taxes.
In some jurisdictions, just under half the cost of building a large block of apartments gets swallowed up in developer levies, infrastructure contributions and other property taxes and charges.
This makes it almost impossible for many developers to raise the initial capital needed to build the big inner-city and middle-ring suburb apartment projects that state and federal governments continue to insist will be the solution to Australia’s housing woes.
It also makes the huge costs potential buyers face for new off-the-plan apartments uncompetitive with existing supply.
Nevertheless, Property Council Chief Executive Mike Zorbas says, “2025 is the year for Australia to redouble our housing supply efforts with the urgency and commitment this crisis demands.
“Missing the target by 462,000 new homes by July 2029 would set off a housing affordability time bomb.
“Thankfully, we can avoid this.”
I admire Mike Zorbas and the Property Council’s optimism, but I am not confident the “housing affordability time bomb” he refers to is so easily defused.