A federal report released on Monday reaffirms that endemic rental shortages will persist for years. The National Housing Finance and Investment Corporation (NHFIC) conservatively estimates that approximately 331,000 households are already experiencing rental duress, and approximately 46,500 households are homeless.
It is anticipated that 190,000 more residences will be created between 2023 and 2033. The NHFIC’s modelling indicates that not enough homes will be built to meet this demand, with a cumulative shortfall of approximately 106,300 dwellings anticipated over the five years to 2027.
“The rapid return of international migration, coupled with a supply pipeline constrained by decade-high construction costs and significant interest rate increases, is exacerbating an already tight rental market,” said Nathan Dal Bon, chief executive officer of the NHFIC. “NHFIC analysis indicates that housing affordability and supply are likely to remain challenging for some time, highlighting the need for a holistic approach to alleviate housing pressures facing Australians.”
The report’s publication coincides with the Senate’s inaction on the Labor government’s Housing Future Fund to construct new affordable housing. Federal Housing Minister Julie Collins stated that the fund’s report was necessary.
“This report serves as a further reminder that too many Australians struggle to find safe, affordable housing,” she said. According to the report, the availability of serviced land, higher construction costs, ongoing community opposition to development, and lengthy lead times for delivering new supply are additional factors impeding the construction of new housing.
In the meantime, the Reserve Bank of Australia (RBA) has argued for some time that the change in how and where Australians chose to reside during the pandemic was one reason why rents did not fall significantly in most areas. In spite of the influx of emigrants early in the pandemic and population stagnation while borders were closed, the report mentions this.
The NHFIC’s analysis concurs: The premium for space at home, coupled with ongoing work-from-home arrangements in the wake of the pandemic, has contributed to a decline in average household size, the NHFIC notes, which has contributed to drastically falling vacancy rates. Mr. Lawless anticipates a reversal of this trend towards larger homes as the rental crunch persists.
He suspects that it is already occurring due to people having no choice but to move into shared housing or rent out spare apartments. “There are indications that rental growth is beginning to moderate,” Mr. Lawless stated.
Rather than a rebalancing of the supply and demand equation for rental markets, I believe this simply reflects the fact that tenants are approaching a limit in terms of what they are willing or able to pay.
Mr. Lawless concurs with the NHFIC that more apartments must be constructed. He observes that even if the Senate approves Labor’s Housing Future Fund, it will take years to reach the construction phase for social and affordable housing.
“The reality is that there is not a great deal of immediacy in any current government initiatives for a problem that requires a very immediate solution,” Mr. Lawless stated. Monday morning data from the Australian Bureau of Statistics revealed a 4% increase in dwelling approvals in February.
BIS Oxford Economics’ Maree Kilroy stated, “This is another weak result for approvals, with the monthly improvement coming after January’s worst performance in over a decade.” Given the substantial inventory of work, it will take significantly longer than usual for this to be felt on-site.
“At present, Australia’s housing shortage is notably evident in the rental market. Mid-decade, there will be fewer dwelling completions due to a decline in approvals. This will prolong the housing shortage into the latter portion of this decade.”