Master Builders latest forecasts are released today and show a further revision down in the expected number of houses to be built over the next five years.
While the volume of building approvals are moving in the right direction, recent months have shown challenges in keeping up the momentum and as a result the expectation is that we will continue to fall further behind the Federal Governments Housing Accord targets.
We are currently sitting around 36,000 approvals behind the target. To cover this gap over the remaining years of the Accord we’d need to see approvals at over 85,000 per year, each year between now and 2029. For NSW this would be an unprecedented achievement, and the current environment and policy settings are unlikely to support this outcome.
The forecasts show NSW is likely to fall short of the Accord targets by over 100,000 new homes, or about 26.5% below were we need to be. The Housing Accord targets are unlikely to be achieved in NSW.
From an industry perspective, we need to see more attention by policy makers on building capacity in the supply chain, rather than simply setting arbitrary targets for new home builds. This means more investment into the things that go into building these new homes, like available, shovel ready land, skilled workers, apprentices and reducing red tape to improve productivity.
Recent months have shown that prices in the housing sector supply chain remain sensitive to relatively small increases in demand. This is a tell tail indicator that supply constraints are holding us back. Putting more demand in the market, whether through private of public investment will only add to further push up prices if it does not come with a corresponding investment into boosting industry capacity.
We currently have a situation where stronger demand is resulting in worse inflation. This is because productivity challenges remain unaddressed by policy makers and
capacity constraints mean we simply can’t just expect that more investment will mean more houses.
The Iran war is likely to further push up prices which will make it even more difficult to get housing projects underway. The more expensive it becomes to build homes the fewer homes we will likely build.
If prolonged fuel shortages cause delays to projects because materials and personnel can’t get to site then the impacts on the delivery on new homes could be very significant.
The housing sector was suffering under prices and capacity pressure well before the war. The CPI data releases two week before the war began shown housing inflation, this is the cost of inputs that go into building homes, was running at close to double the rate of inflation in the rest of the economy and ABS said in its own statements that housing inflation is now the largest contributor to inflation in the CPI basket.
The data is showing us the housing crisis has become a broader economic problem, pushing up prices even before we were dealing with fuel price shocks.
We need to see genuine supply side policy reform to have any chance of stamping out the inflation which is holding us back from building more homes.
The Minns government should be commended for take on serious planning reforms in recent months. These reforms will help to speed up delivery and in doing so lift capacity to build homes. But we also need to see corresponding policies to invest more into skills and apprentices to build workforce capacity.
We also need to address the limitations in insurance and financial markets which are holding back medium rise developments. We hear too often that insurance premiums and the rising costs of finance is what stops the feasibility of medium rise developments. These are exactly to type of developments we need to see more of if we are going to boost supply inside current city limits and give more people the opportunity to live close to where they work and socialise.