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Amber Schultz

Why the surge in home construction will do little to address affordable housing

Following a two-year slowdown in housing construction, the boom is back, with a record number of houses being developed. But it’s not likely to fix Australia’s shortage of affordable or social housing, despite government investment. Labor, land and material shortages continue to slow down construction, while interest rates will keep rental costs high. 

While more investment is always needed, simply throwing money at more housing won’t fix Australia’s housing crisis. 

Supply issues hamper progress

COVID-19 supply chain disruptions coupled with the invasion of Ukraine have resulted in shortages of migrant workers and materials like timber in Australia, with some building firms focusing on large development contracts over individual homes. There’s a two-year backlog of construction that’s only now being addressed. 

Land, labour and materials are all in short supply across the country, Housing Industry Association Chief Economist Tim Reardon tells Crikey — and it’s not clear which shortage is more dire.

“We have a record number of homes approved and not yet commenced, and a record number of homes sold but not yet approved. So there’s an enormous volume of work in the pipeline,” Reardon said. 

“There are 75% more homes under construction now than pre-COVID-19.” 

Reardon believes as interest rates increase, so too will density — with more people renting out spare rooms in their homes.  

More homes don’t equal cheaper homes

But even as supply is addressed across the next few years, that’s not going to have a major impact on housing prices, Reardon said. 

“Our anticipation is that in the next 12 months that rate of growth will slow but remain exceptionally vast, which means the cost of construction will continue to rise,” he said. 

“That, in turn, will see demand for housing slow as those affordability constraints bind, particularly in 2024 and 2025, which is when we’re expecting a slowdown and building activity.” 

How did we fix it across COVID-19? 

At the start of the pandemic, there was a monumental effort by state governments to get people off the streets, with around 33,000 rough sleepers booked into temporary accommodation.

But this was a short-term fix: many were housed in hotels and short-term rental properties unfilled by tourists and international visitors. Hotels are simply not a solution for a number of reasons, Australian Housing and Urban Research Institute Managing Director Dr Michael Fotheringham tells Crikey.

“It’s not a terribly efficient way to actually address rough sleeping … as they’re not designed for this purpose,” he said. 

“For people with really complex needs, it’s a lot of constraints.”

He said not only does Australia need more social housing, but more crisis accommodation with individual facilities. Many centres have shared kitchens and bathrooms, which are not appropriate for those with health issues like COVID-19.

Australia’s social and affordable housing stock currently sits at around 2.5%, compared to the UK’s 23%, with affordable housing underfunded for generations — particularly since the 2014 Abbott government. Labor has pledged $10 billion to the Housing Australia Future Fund to build 30,000 new social and affordable housing properties across five years.

“The truth of it is housing homeless people is cheaper than not housing them,” Fotheringham said. 

“You spend more on people being homeless, through emergency departments policing, broader corrections, worker support, mental health … and that’s not even considering the cost to society or preventing someone from being a productive member of society.”

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