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With Australia’s home building sector reporting increasing activity, an industry expert has argued that this progress could stall unless state governments adopt “pro-supply” policies to support housing construction.
The Housing Industry Association’s (HIA) latest Economic and Industry Outlook report has revealed that home building activity increased over the September 2024 quarter but remains uneven across the capital cities, with Sydney particularly impacted by state-specific development challenges.
Reflecting on this progress, HIA senior economist Matt King highlighted that “a national home building recovery is in sight, but state government housing policies risk stalling the recovery”.
“At the national level, demand for new homes is accelerating and this is largely due to the fact that the RBA hasn’t increased interest rates for a year, population growth is still elevated, the unemployment rate remains low and real incomes have stabilised,” he said.
Although King observed that levels of building activity across the capital cities and regional markets have grown increasingly varied, he shared he was confident that new home building activity would continue to improve across most markets heading into the new year.
Across the states, King reported that Perth, Adelaide and South-East Queensland had combatted “ongoing supply side constraints” and continued to “lead the way in new contract sales and building approvals”.
As a result of these conditions, building approvals in the September 2024 quarter were observed to have increased from the corresponding quarter last year by 60.1 per cent in Western Australia, 24.2 per cent in Queensland and 16.3 per cent in South Australia.
Even with these increases in activity, the economist warned that Sydney remains an outlier in home building activity, stating that there is “still no indication of a near-term rebound in both detached house and multiresidential building”.
“New home building in the Sydney basin remains exceptionally low, primarily due to exceptionally high land price and an ongoing excessive impost of housing taxes and infrastructure charges,” King said.
Future outlook for housing approvals
Over the month of September 2024, detached house approvals across the nation rose by 6.1 per cent to 9,890 homes, marking the highest monthly number of detached house approvals in two years.
King stated that detached house starts are expected to rise steadily from a trough of 100,230 to 115,690 in 2027, adding that addressing the challenges around land availability and labour shortages could provide “significant upside potential for this forecast”.
Contrastingly, King also noted that the multi-unit sector remains constrained due to the impact of “skilled labour shortages, business credit constraints and the aftermath of significant building material cost escalation”, and is consequently “unlikely to experience any material recovery before mid-2025”.
Looking forward, King highlighted the “relatively stable economic conditions nationally” in forecasting that “home prices will remain elevated, rental vacancies will remain acutely low and demand for new homes will recover”.
Nevertheless, the economist stressed that the “extent of the recovery in new home building will be determined by the ability of governments to ease the barriers to home building”.
Through this outlook, King said that failure to implement policies such as expedited land release, concessions on property taxation, and accelerated development approval timelines would “risk slowing the rate of home building over the next five years.
“Housing investment is encouraged by certainty of policy settings. Recent state government announcements to levy increased surcharges on foreign investors and introduced taxes on short-term rental accommodation are unhelpful at a time when stability is needed to achieve the 1.2 million home target,” King said.
Noting that we are currently at the beginning of an “upswing in the cycle and the initial stage of the National Housing Accord target period”, King emphasised that “now is the time to ensure that each state government housing policy mix is entirely pro-supply”.
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