Our path out of the housing crisis
Australia is facing a housing crisis years in the making. Well-located and affordable homes are increasingly unattainable, forcing families seeking affordable housing into long commutes far from family and friendship networks. Most tragically, an increasing number of people are being driven towards homelessness.
Fundamentally, the housing crisis is the result of not enough homes being built to accommodate rising demand. This is a structural, long-run problem. Per capita, Australia’s rate of housing construction peaked in 1970 and has never recovered. Even the late 2010s ‘mini-boom’ was substantially lower than per capita peaks in the decades preceding.
Chart 1: New Dwellings Completed per 1000 population, 1955-2022
Source: ABS, Deloitte Access Economics Analysis
In the short term, several factors are interacting with this structural weakness to drive record spikes in rents and housing stress:
- Household preferences are changing. With working from home now much more common, households that can afford it are prioritising spare bedrooms and space. This adds to housing demand even without population growth.
- Travellers and migrants are returning. We forecast a record population increase of 541,000 in 2023 and 441,000 in 2024, driven by a rapid rebound in net migration.
- Skills shortages in construction and planning. The National Skills Commission estimates that every single construction occupation is in shortage, and planning approval times have increased substantially, adding to delays and risks for developers.
- Construction sector supply chains are constrained. Inputs to home construction have increased in price by 32% since the start of the pandemic.
As a result, the housing shortage will likely get worse before it gets better - but there’s light at the end of the tunnel. We estimate that 188,000 homes will be completed in 2024, well below the pre-pandemic peak. With a substantial housing shortage already built up, this rate of construction is unlikely to substantially ease housing pressures.
The good news is that the Federal Government has set an ambitious target of 1.2 million homes over 5 years, or 240,000 annually. If achieved, this could make a substantial dent in the housing shortage and help ease the supply crunch that we are currently facing.
Announcing the target is the easy part – now comes the hard work of reaching it. This would require above record levels of residential construction every quarter from September 2024 to June 2029. For too long, housing policy has been uncoordinated, with different levels of government and the private sector pulling in different directions. Deloitte’s latest report, Solving Australia’s severe housing shortage: a bold new approach argues that a systems thinking approach is key to delivering on this target. This means examining housing as a system of interconnected components and focusing on the incentives and interactions between these components, rather than considering them as individual actors.
Using this approach, Deloitte has proposed some key recommendations to get the housing system moving again:
- Governments should establish a single point of responsibility for housing policy, funding and delivery levers.
- As part of the National Planning Reform Blueprint, governments should implement nationally comparable planning reforms – to enable the delivery of well-located homes across the housing spectrum.
- Governments should be ambitious and set out a new vision for community housing and government developers – reducing the reliance on the private sector and contributing to social and affordable housing supply.
This is the first paper in a new series: to learn more, read the full report here.
This blog was co-authored by Dominic Behrens, Economist at Deloitte Access Economics.
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