Preface

The housing crisis in Australia has reached a point that seems almost unsolvable!

Whether it is the number of housing starts, completions, or approvals for construction, all are far behind the targets set by the government.

At the same time, the population continues to grow, housing demand continues to increase, and the gap between supply and demand is getting bigger and bigger.

Soaring construction costs, rising interest rates, labor and material shortages, coupled with the collapse of thousands of builders, these factors have made the housing market even worse.Not to mention the stringent approval processes and the issue of insufficient land supply, which make the construction of new houses even slower.

The current crisis is likely to become a norm, and it is almost impossible to completely escape the predicament!

Australia's rents continue to soar

Domain has just released its September quarterly rent report, and the data shows a significant increase in the median rents of major capital cities in Australia.According to data from Domain, from December 2019 to September 2024, the median rent for houses surged from AUD 430 to AUD 650, an increase of AUD 220, representing a 51% growth. During the same period, the median rent for units also rose from AUD 450 to AUD 630, an increase of AUD 180, which is a 40% increase.

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Although the rent increase has stabilized in the most recent quarter, Sean Langcake, the head of macroeconomic forecasts at BIS Oxford Economics, warned that the rental crisis will continue as the demand driven by population growth far outstrips housing supply.

He said, "Some markets may experience a pullback, but overall, with the population continuing to grow, demand remains very strong. The government's housing targets sound ambitious, but it seems difficult to see a significant drop in rents. I believe the key to the problem is the rate of population growth, not when it will decrease."

The "stable population growth" mentioned by Langcake can be referenced in the predictions of the 2023 Intergenerational Report: Over the next 40 years, Australia will have a net immigration of 235,000 people per year, maintaining a high level.A stable influx of immigrants means that over the next 39 years, Australia's population will increase by more than 13 million!

This is roughly equivalent to having an additional Sydney, Melbourne, and Brisbane combined.

Such immigration trends imply that the vacancy rate in the rental market will remain low for a long time, and rents will continue to face upward pressure.

In fact, CBRE predicts that Australia's rental crisis will not end soon, as the rate of population growth outpaces the rate of housing supply.

Data from the Australian Bureau of Statistics shows that in the first nine months of the 2023-24 fiscal year, Australia's net overseas migration increased by 388,000 people, which is almost close to the government's projected target of 395,000 people over 12 months, just 7,000 people short.The immigration figure has significantly exceeded previous forecasts— the government revised the estimate from 315,000 people in May of last year to 375,000 in December. Even with a slight slowdown in population growth, the number of immigrants remains high.

Especially in the March quarter of 2024, the immigration figure was very strong, mainly due to the large influx of international students. Although the immigration growth rate in the June quarter may slow down, it is expected not to drop to the low level the government hopes to see.

In the 12 months ending in March 2024, Australia welcomed a total of 509,750 overseas immigrants. Among them, New South Wales absorbed 168,148 people, followed by Victoria, which accepted 151,740 people. Queensland and Western Australia accepted 82,794 and 64,902 people, respectively.

From a national perspective, the population increased by 2.3% in the past 12 months, reaching a peak of 2.6% in the September quarter. Victoria is the state with the most population growth, with residents approaching 7 million, while the population of New South Wales has reached 8.5 million.

CBRE predicts that by 2034, Australia's population will increase by 3.6 million to 31 million (currently 27.4 million).Moreover, the supply of apartments is expected to approach the lowest level in a decade in the coming years, with only 50,000 new apartments projected annually from 2024 to 2029.

The apartment supply is set to hover near a decade-low (50,000 units per year from 2024 to 2029).

Consequently, CBRE forecasts that the vacancy rate in Australian capital cities will further decline from 1.9% in 2024 to 1.2% by 2029.Therefore, between 2024 and 2029, the average rent in Australia is projected to increase by 25%, significantly higher than the anticipated CPI inflation rate.

In simple terms, rapid population growth and insufficient housing supply are putting increasing pressure on the Australian rental market, with no signs of relief in the short term.

Although the Australian government has set a goal to build 1.2 million homes within five years,

the actual number of starts is far from meeting the target.

The number of housing starts in Australia continues to decline.On Wednesday, the Australian Bureau of Statistics (ABS) released quarterly data on residential commencements and completions.

In the quarter of June this year, the number of residential commencements was 40,300, nearly one-third less than the Albanese government's target of constructing 1.2 million homes over five years.

According to this target, 60,000 residential units need to be commenced each quarter.

In the fiscal year of 2023-24, Australia had a total of 158,750 residential commencements, which was 81,250 units lower than the Labor Party's annual target of 240,000, with a gap of 34%.

The completion situation was slightly better, with 44,900 residential units completed in the June quarter, but this was still 15,100 units less than the 60,000 units required by the Labor Party each quarter, with a gap of 25%.Throughout the 2023-24 fiscal year, Australia completed a total of 176,100 housing units, which is 63,900 units short of the target, representing a 27% gap.

At the same time, the number of housing units approved for construction also lagged behind the target. The total number of housing units approved for construction was 166,200, which is 78,800 units short of the Labor Party's target, representing a 31% gap.

Australia's population increased by 631,300 people (second quarter national account data indicates).

These figures show that the current actual construction volume is far below the Labor Party's target of 1.2 million housing units.Considering the following reasons, the likelihood of the Labour Party achieving this goal is virtually zero:

Interest rates are likely to remain structurally higher than during the construction peak of the last decade.

Construction costs are about 40% higher than before the pandemic.

Builders are competing with the government's large-scale infrastructure projects for labor and materials.

Thousands of homebuilders have gone out of business.Conclusion

Overall, the current housing issue in Australia is one of supply not keeping up with demand, with houses being built at a pace that cannot match the population growth.

High construction costs, high interest rates, and the collapse of builders are already causing headaches, and with the influx of temporary residents and international students, the rental market is under increasing pressure.

To truly address this problem, the most direct solution would be to reduce net overseas migration, allowing the population growth rate to catch up with the construction of housing and infrastructure.

Otherwise, no matter how hard the government tries, Australia's housing crisis will continue to drag on with no end in sight.To put it bluntly, unless the number of immigrants decreases, Australia's housing crisis may become a long-term, intractable problem.