New private residential construction is at its lowest level for almost four decades but spending on renovations has boomed, according to a new analysis.
The report by KPMG found that new private residential construction spending per capita is at its lowest level since 1987-88, as renovation spending surged from 34.2% of total residential construction spend in 2018-19 to 40% in 2023-24.
“For every nail hammered and brick laid in residential construction, 40% of it is going into renovating a pre-existing home,” said Terry Rawnsley, an urban economist at KPMG.
“This indicates that there is not enough money and resources being attracted to expanding the housing stock.
“More straightforward planning processes and lower risks for builders make renovating existing homes a favoured option over adding multiple homes on the same block.”
New private residential construction also includes demolishing a detached property and replacing it with a single new home, known as a one-for-one replacement.
Almost 10% of new private residential construction spending is on one-for-one replacements, KPMG found, with Victoria having the highest rate at 12.6% of new residential construction, followed by Western Aaustralia at 9.1%, and New South Wales at 8.7%.
The analysis found that investment in new housing per resident averaged $186,000 per new resident since 1993-94.
Between 2012 and 2019, new housing spending increased by 58%. But the departure of international workers and students in 2020-21 during the pandemic led to a per-capita investment spike of $1.9m per capita.
Two years later, the per-capita investment has declined by almost 50%, sinking to $113,000 in 2023-24 as population growth surged and investment flatlined, the analysis found.
Covid also had an impact on renovation spend, according to the analysis.
As new housing investment increased between 2012 and 2020, alterations and additions investment declined and reached its lowest share of 33.5% in 2017-18.
But this investment rebounded significantly in recent years – a trend further amplified since 2020 as those driven by remote work and lifestyle changes opted for larger and better homes.
An analysis of NSW, Victoria, Queensland and Western Australia found that the local government area with the greatest spend on renovations was Brisbane, followed by Sydney’s northern beaches and Boroondara in Melbourne’s east. Mornington Peninsula, south-east of Melbourne, and Stonnington, in the city’s inner south-east, made up the top five.
The analysis showed that there needed to be planning settings which encouraged investment in increasing housing density, rather than preference for one-for-one replacements, KPMG said.
“Homeowners are absolutely entitled to renovate their homes to add value to their investment and to ensure existing housing stock is maintained,” Rawnsley said.
“However, shifting some of the labour and materials away from renovations and one-for-one replacements towards the construction of new housing stock can help to relieve current housing shortages.”
