Apartment construction must double to achieve government’s 1.2 million homes target, says HIA

The Housing Industry Association (HIA) has warned that the volume of apartments commencing construction will need to double to achieve the Australian Government’s target of building 1.2 million homes over the next five years, with ongoing capacity constraints likely to keep apartment commencements at exceptionally low levels for at least another year.

HIA Chief Economist Tim Reardon stated, “With current policy settings, is anticipated that it will take at least six years to build 1.2 million homes.”

According to HIA’s recently released Economic and Industry Outlook report, the volume of multi-unit commencements has fallen to almost half the volume commenced in 2016, before the impact of taxes on investors took effect. Apartment construction has also been constrained by labour and material shortages and cost, which appears likely to continue for another year.

“For many projects, this will require refinancing and then reapproval which will necessitate higher construction costs due to changes to the National Construction Code. This will further delay commencement for several years,” Mr Reardon added.

The subsequent shortfall in supply over the next few years is expected to result in extremely low rental vacancy rates and extraordinary growth in rental prices.

Competition for inputs remains intense against other sectors, including non-residential construction and mining, amid continued spending on public infrastructure projects, which is crowding out the home building, especially the high-rise apartment sector.

The outlook for detached house commencements appears set to reach a trough in the second half of 2024, with the recovery expected to be slow and inconsistent across jurisdictions, particularly in the major markets of New South Wales and Victoria, which face challenges of high land costs, taxes, and changing migration patterns.

Mr Reardon concluded that while it is possible to build the government’s target of 1.2 million homes over the next five years, it will require significant lowering of taxes on home building, easing pressures on construction costs, and decreasing land costs. However, even if this volume of homes is commenced, the housing shortage will remain.

HIA’s report forecasts 95,380 detached homes to commence construction in 2023/24, down by 13.4 per cent compared to the previous year and almost a third on the 2020/21 peak, marking the weakest financial year in more than a decade. Multi-unit commencements are forecast to produce a 2023/24 financial year total of 64,350, up by 2.0 per cent compared to the decade trough of the previous year.