Australia’s painful rental crisis will get worse in the coming years, a new report says, due to a shortage in supply of new houses and units caused by costs and ongoing constraints in construction.
In its third report on the state of the nation’s housing for 2022-2023, released on Monday, the National Housing Finance and Investment Corporation (NHFIC) said banks increasing their interest rates earlier relative to the Reserve Bank of Australia guidance had reduced the supply of dwellings.
About 148,500 new dwellings are expected to come on to the market in the 2022-2023 financial year. This will fall to 127,500 for net new construction in 2024-2025, with a recovery expected in the following year due to changing macroeconomic conditions and stronger underlying demand.
There will be a shortage of apartments and multi-density dwellings for rent over the medium term, the report found, with net new additions of apartments at about 57,000 a year over five years to 2026-2027, which is 40% lower than the levels of the late 2010s.
The commission has estimated about 377,600 households (a person or group of people who want a home) are in housing need. That includes 331,000 in rental stress, and 46,500 who are experiencing homelessness.
In the next 10 years, the report suggests the number of new households expected to form across Australia will be 1.8m, taking the total to 12.6m from 10.7m in 2022. But a slowing supply of housing will lead to a negative balance of available dwellings – meaning more new households wanting a place to live than new houses available – of 106,300 over five years to 2027, and 79,300 over the 10-year period to 2033.
The construction industry has been under pressure, the report said, with tight supply of labour and materials, as well as bad weather resulting in the delay of construction of approximately 28,000 dwellings last year.
Higher interest rates, the availability of serviced land, higher construction costs, long lead times, and ongoing community opposition were also impeding construction.
Rental growth in Sydney and Melbourne has been outpacing rental growth in regional NSW and Victoria, the report found, suggesting people are returning to large cities close to employment centres after three years of the Covid-19 pandemic.
Rents in Sydney rose more than 30% from early 2020 to January 2023, while Melbourne’s increased by just under 10%. South-east Queensland saw some of the biggest rent increases, with all local government areas seeing rent increases of 30% or more.
NHFIC CEO, Nathan Dal Bon, said the rapid return of overseas migration after the pandemic, as well as decade-high construction costs and interest rates, were exacerbating an already tight rental market.
“NHFIC analysis shows housing affordability and supply are likely to remain challenging for some time, underscoring the need for a holistic approach to mitigate the housing pressures Australians are facing,” he said.
As part of the federal government’s proposed $10bn social housing legislation, the NHFIC would be renamed Housing Australia and be responsible for delivering 40,000 new social and affordable homes over five years from 2024.
