Australia needs 230,000 new homes a year, new report suggests

Australia needs to build in more than 230,000 homes every year to help address its property market affordability issues at a time when the number of some new build home sold is falling.

Over the past 15 years Australia’s housing market has been dominated by a persistent undersupply of housing, according to a new report from the Housing Industry Association (HIA).

Looking at future population growth and wages growth, the report suggests that 230,000 new homes are needed every year to keep up with demand as prices rise because of a lack of supply.

‘The excessive cost of supplying new housing lies at the core of the affordability challenge. This has been recognised by a number of key organisations including the RBA and the Productivity Commission and federal and state Treasury’s have identified the supply of housing as the key problem,’ said Tim Reardon, HIA’s principal economist.

‘In 2016 Australia built a record number of 230,000 new homes and we will need to maintain this rate of annual supply for the next thirty years, if we are to meet future housing needs.

‘The enormous pent up demand for housing in metropolitan areas is now being met and for the first time in 15 years the supply of new housing is in balance with the demand for new housing,’ he explained.

‘Housing affordability will not be solved by amending negative gearing, capital gains tax or imposing punitive charges on foreign investors. Such measures increase taxation on housing and further raise the cost of new supply, which is already excessive and inefficient,’ Reardon pointed out.

‘Meaningful action needs to include all three tiers of government, working with industry, to ensure the delivery of affordable residential housing,’ he added.

Meanwhile, separate research from the HIA shows that sales of new detached houses declined for the second consecutive month in February 2018. The decline in new house sales during the first two months of 2018 is consistent with HIA’s expectation that residential building activity will move lower over the next 12 months, although several key markets have experienced growth.

New house sales in New South Wales saw decent growth during February. There were several favourable changes made by the State’s Government relating to first time buyers last year and these have been beneficial to the state’s housing industry, according to HIA senior economist Shane Garrett.

He pointed out that despite the fact that the overall volume of sales declined during February, reductions only occurred in two of the five states covered by the HIA new home sales report and the magnitude of these reductions outweighed the increases which took place elsewhere.

The largest fall was in Queensland with a decline of 16.3% and a fall of 9.9% in Western Australia. The largest increase in sales was in New South Wales with growth of 11.7%, followed by South Australia up 10.3% and Victoria up 4.8%.

‘Our forecast is that new home sales will trend downwards during 2018 in line with new home building activity. We expect things to bottom out in late 2019 before modest growth resumes,’ said Garrett.

‘Tighter restrictions around investor lending and heavier obstacles to foreign investor participation are contributing to the weaker conditions in new dwelling construction,’ he added.

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