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According to a new report, money is still flowing into the construction industry but more and more of it is being dedicated to renovating.
KPMG has released analysis of spending in the residential construction sector, revealing that while spending on renovations has boomed over the past five years, new residential construction on a per-capita basis has hit a low not seen since 1987–88.
Over the past five years, spending on new home building has dropped 14 per cent, adjusted for inflation. By comparison, the amount of funding flowing into renovations has increased by 6.5 per cent.
In terms of total residential construction funding from private individuals, renovation spending comprised 34.2 per cent of all capital spent in the sector in 2018–19. In the most recent financial year, 2023–24, that figure has climbed to 40 per cent.
“For every nail hammered and brick laid in residential construction, 40 per cent of it is going into renovating a pre-existing home,” noted KPMG economist Terry Rawnsley.
The report also noted that approximately 10 per cent of new private residential construction is made up of one-for-one construction, where an existing home is demolished to make way for a new single-family detached house. This means that roughly one-tenth of the funds flowing into new home building is not contributing to an increase in supply.
Victoria has the highest rate of one-for-one replacement, with 12.6 per cent of new residential construction essentially knockdown rebuilds. In Western Australia, this figure sits at 9.1 per cent, and in NSW it’s 8.7 per cent.
In Rawnsley’s view, part of the reason that money is increasingly flowing into renovations as well as knockdown rebuilds is the greater ease at which consumers are able to accomplish these jobs, relative to new construction.
“There is not enough money and resources being attracted to expanding the housing stock. More straightforward planning processes and lower risks for builders make renovating existing homes a favoured option over adding multiple homes on the same block,” he said.
The firm is advocating for governments to address planning settings to encourage investment in increasing housing density, rather than preferencing one-for-one replacements.
“Home owners are absolutely entitled to renovate their homes to add value to their investment and to ensure existing housing stock is maintained. However, shifting some of the labour and materials away from renovations and one-for-one replacements towards the construction of new housing stock can help to relieve current housing shortages,” Rawnsley said.
ABOUT THE AUTHOR
Juliet Helmke
Based in Sydney, Juliet Helmke has a broad range of reporting and editorial experience across the areas of business, technology, entertainment and the arts. She was formerly Senior Editor at The New York Observer.
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