Right now, Australia’s housing market is in crisis. In fact, recent construction industry data and reports indicate that construction efficiency has fallen sharply over the last 30 years. The sector has boomed in the 2010s. Due to the vastly different age, outdated construction methods, and complicated regulations it’s now trapped from cranking out the needed units to meet demand. Net migration has been down significantly from its 2023 high. Experts have been sounding the alarm that this unprecedented drop will have serious ramifications on the overall housing market, affecting both supply and cost of housing.
The Productivity Commission’s report shows Australia is building homes less efficiently than we did just six years ago. We’re simply not using labor and capital as efficiently as we were 30 years ago. Cumbersome regulations and archaic building methods exacerbate this wasteful construction pipeline. Yet, they have deepened the ongoing housing crisis.
Growth Rates and Housing Stock
Yet Australia’s economic growth rate in the 2010s averaged less than 2 percent per year. That remarkable figure was not only ahead of growth rates for the two prior decades, but almost matched that of the last half-century. The universe is very different from 2001.
Between 1947 and 2001, the number of homes in Australia increased at a rate greater than the overall population. In sharp contrast, this has completely reversed since 2001, as population growth has outstripped the addition of new housing stock. This transformation has put a new level of strain on the housing market, making the fight for whatever rental properties exist more competitive than ever.
The sheer size and rapidly shifting nature of net migration complicate matters even further. In 2023, net migration numbers quickly jumped above 500,000 per year. After that, they plummeted significantly. Unfortunately, experts have foretold the continuation of this trend, which would only exacerbate the housing supply and demand dynamic.
Impact of Migration on Housing Market
The interaction between migration and housing demand continues to be key to understanding the challenges Australia currently faces. The country keeps up to 2.5 million migrants under detention at any one time. Their presence has greatly outpaced the demand for housing.
Michele Bullock, an economist, stated, “New migrants add to demand … they have certainly added to pressure on the housing market, we know that.” This view highlights the double-edged nature of migration’s effect, since it has a positive angle—migrants help support labor supply. Bullock, right, discussed how they’ve been depopulating the labor supply. He fears that the effect has been lopsided in general.
This sentiment expresses a deeply felt understanding of the role migration plays in climate and housing impacts across Australia. Not only does it create demand for rental properties, but it strengthens the workforce needed to actually build them and it helps feed other industries as well.
Challenges in Construction Efficiency
Second, Australia has an extraordinarily large construction industry relative to the size of other advanced nations. At the same time, it’s crippled by massive inefficiencies that drag out housing delivery. As a result, economists have raised the alarm flagging that foreign buyers accounted for just 1 percent of property transactions for the 2022-23 financial year. This record figure is a testament to the reality that domestic factors mostly drive the housing market, not outside money.
Australia’s construction industry is currently facing unprecedented inefficiencies. This has created a situation that makes it extremely difficult for them to stay competitive and address the growing demand for housing. The combination of stagnant construction methods and regulatory hurdles can stifle the potential for new developments that are desperately needed to accommodate an expanding population.
