The Aussie housing market is bigger but are there enough homes to buy?

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The property market has seen significant growth over the past decade, including a sharp spike in prices - largely in the major capital cities - but also a notable uptick in newly built homes. 

According to research by PropTrack, Australia built just over a million new homes between the September 2016 quarter and the June 2021 quarter. Over five years that equates to about roughly 200,000 homes each year. PropTrack says it’s our fastest pace of home building in history. 

This seems like a lot of property developed in a short period and goes a little against the overarching narrative of some politicians and media that Australia hasn’t done enough to add homes to our market. But, maybe more importantly, are the new homes the right ones? Furthermore, are they affordable?

This is part of the issue we now face, having boosted our populations in cities like Sydney and Melbourne by massive numbers over the past 15 years. But we have not met increased demands for varied housing. Indeed, most of the new builds over the past five years have been apartments or semi-detached homes, says PropTrack. And going off ‘for sale’ ads on sites such as Domain, many of these homes target cashed-up or luxury buyers. So suitability is certainly a valid question here.

It’s also become clearer since the pandemic that many Aussies want a better lifestyle, more convenient commutes and more space at home. And so while apartment builds spiked before the pandemic, the post-pandemic world will see more freestanding houses built, according to PropTrack’s research.

This will please many would-be buyers who don’t necessarily want to live in densely stacked unit blocks in say, Sydney’s north-west or Carlton in Melbourne. It doesn’t however solve a more immediate issue of helping younger buyers onto the property ladder. Prices are still very high in major capitals and that’s largely attributed to a lack of supply in the areas people typically want to live in. 

Some solutions have been put forth. One is to loosen up council restrictions on new builds so that smaller and more innovative designs can help bring down costs. Some experts have also suggested if there were more well-positioned properties for downsizers to move into, this might free up more suburban homes for young couples and families to scoop up, and maybe ease the ‘fear of missing out’ that currently drives prices up. 

On the lookout for new homes

For now, the data tells us that there hasn’t been a lot of building this year, so things are in a bit of a holding pattern anyway. For instance, the total number of new homes approved fell 8% in April (seasonally adjusted), following a 1% drop in March, according to data from the Australian Bureau of Statistics (ABS).

This, simplistically, means there has been less activity in the home building sector overall. Queensland saw the biggest drop in new builds at 23%, followed by Victoria which was down 18.6%. For some context, Victoria was the most prolific home builder between that 2016-2021 period, as per PropTrack’s figures.

In other states, Western Australian builds dipped by 5.8% in April, while rises were recorded in South Australia at 19%, New South Wales at 12.5% and Tasmania 3.5%. It’s a mixed bag.

And let’s not forget that ‘approval’ is a bit of a catch-all in this ABS data, which can make things mirky. For example, the figures include construction of new buildings, alterations and additions to existing buildings, non-structural renovation and refurbishment work, installation of integral building fixtures and full demolitions of existing dwellings. That’s a lot of variation!

No matter how you dissect the numbers though, higher inflation, a slower economy and continually hiked interest rates are surely playing a part in this 2023 slump in new builds. 

“Total dwellings approved fell to the lowest level since April 2012,” said the ABS’s head of construction statistics, Daniel Rossi. “The overall decline was driven by a fall in approvals for private sector dwellings excluding houses, which fell 16.5%, to the lowest level since January 2012.”

In addition, the value of total residential building approvals also fell 2.5%, made up of a 2.7% decrease in new residential building and a 1.2% fall in alterations and additions.

Slumping builds impacts a lot of people

All this together means that less money is flowing into housing construction right now, which isn’t a great outcome for a population that only seems to be getting larger and which is being given fewer affordable homebuying options.

At the very least, more new and attractive unit blocks in key locations might help bring prices down and help some renters become owners. As economist at the Housing Industry Association, Thomas Devitt says, a lag in new builds generally impacts both the buyer and renter.

“The combination of construction cost blowouts, labour uncertainties, increased compliance costs and taxes on investors has seen approvals for multi-units fall,” Devitt notes. “These disappointing approval numbers are occurring as population growth surges with the return of overseas migrants, students and tourists.

“This imbalance will see the affordability and rental crisis deteriorate further.”

All this said, the homebuying journey needs to start somewhere. If you have done your homework and found some options, it might be time to review home loans. We try to make this step easier at Mozo by giving you side-by-side comparisons of many of the top home loans on the market. You can start comparing below!

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* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

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