Australia’s housing affordability crisis is worsening despite the National Housing Accord’s ostensible aims to deliver a million homes, proving not nearly enough to keep up with demand. The agreement, signed in October of 2022, focuses on producing 1.2 million new homes in the next five years. This amounts to an ambitious annual homebuilding target of 240,000 homes. The first year has been disappointing. In the three-plus months since the initiative’s launch on July 1, 2023, only 170,000 homes have been completed.
The country is balancing surging property values and a booming population. The deal is entirely supply-focused, leaving out key demand drivers such as immigration policy and interest rates. These elements have served to dramatically constrict supply in the housing market. Since that accord was signed, the national median price of a home has skyrocketed by $127,117, for an annual increase of about $42,000.
Struggling to Meet Targets
The ambitious goal of producing 1.2 million new homes over five years has already seen a major blow in the program’s first year. With just 170,000 homes delivered, the target for the following years has jumped to almost 260,000 homes per year. This important change shines a spotlight on the growing urgency facing the construction industry with our country’s skyrocketing population.
The Housing Accord now has bipartisan support from federal, state and local government, as well as backing from nine super funds and a number of other housing industry bodies. In spite of this unprecedented collaboration, the challenges are still daunting. A recent BuildSkills study noted that “achieving this target will require a substantial and geographically broad-based expansion of the residential construction workforce — a demand far exceeding typical industry expectations.” The study further emphasized that “meeting the full scale of this mobilisation will pose a profound challenge for the sector.”
Adding fuel to the fire is the downturn in housing approvals. Data indicates a 6 percent drop in approvals in August, raising concerns about the sector’s ability to keep pace with demand.
Rising Prices Amidst Increased Population
In the same time since the Housing Accord was signed, Australia has net-migrated approximately 1.4 million additional people. This wave has fueled an additional net population growth of more than 1.7 million souls. This influx has just added to housing demand, adding even more pressure on an already stressed market.
This month, the national median house price set another record, rising 0.8 percent in September. That would be the biggest month-to-month increase ever recorded in 2023 thus far. As affordability issues worsen, Australia now ranks as the second least affordable city in the world while simultaneously being the 859th least dense, according to NSW Minister for Planning and Public Spaces Paul Scully.
“It’s the second-least-affordable city in the world, but the 859th least dense.” – NSW Minister for Planning and Public Spaces Paul Scully
The agreement does not include any measures to address high interest rates or levels of immigration. Therefore, external factors are still raging on to contribute negative housing affordability. The Reserve Bank of Australia decided not to sign the accord. This regrettable decision moves it deeper from the frontlines of these urgent matters.
Innovative Solutions and Future Prospects
Business Secretary Paul Scully has launched a pioneering new Green Finance scheme. This initiative is meant to alleviate some of the funding pressures that developers and builders encounter. The NSW Minister for Planning and Public Spaces announced a guarantee covering 50 percent of pre-sold apartments priced under $2 million each. This commitment really helps to embolden developers. It further injects construction activity into a market that is already feeling a deepening economic anxiety.
Stakeholders have an amazing opportunity to get creative with these innovative strategies. They should remain cognizant of the macroeconomic environment. In truth, the Housing Accord is under attack by a slew of unforeseen, nuanced, wicked challenges. These gaps are about more than just basic supply constraints.
