Housing construction is falling behind both on estimates of demand and the government’s target of building 1.2m homes in five years, according to figures released on Wednesday by the Australian Bureau of Statistics.
Experts have cited a number of reasons for the shortfall, including labour and materials shortages, slow and complex planning processes and high interest rates. But some of these factors may be cyclical – meaning construction could pick up and meet the targets as pandemic-related shortages disappear and planning reforms come in.
The number of dwellings that commenced or finished construction were both down in December on previous quarters, and well below levels seen a few years ago. About 57,000 new homes would need to be built every quarter between 2024 and 2029 to meet the government’s targets.
Just over 43,000 a quarter are needed just to meet estimates of new housing demand from Housing Australia. At current rates, we are about 20,000 houses below that target – and close to 30,000 houses below the government’s Housing Accord goal.
The government’s aim to build 1.2m homes is ambitious, says Joey Moloney, deputy program director of Grattan Institute’s housing and economic security program.
“That said, an ambitious target is absolutely the right thing to do.”
“It’s looked more ambitious since it got announced because the construction sector has entered a downswing.”
This can be seen in the data – the number of dwellings approved and construction commenced has fallen every year since 2021-22. The number of dwellings finished is picking up, but still below the highs of last decade.
There are both long and short-term drivers of this trend. Supply chain problems have recently driven up material costs, says Prof Martin Loosemore from the University of Technology Sydney, but “prices are stabilising”. But Loosemore says the real issues hampering supply are matters such as skill shortages, the time and cost for getting planning approvals, and a lack of innovation in the industry.
Productivity in dwelling construction has been stagnant for 30 years, in part because the industry is very fragmented. “[Construction] has the highest number of independent contractors of any industry by a long way,” says Loosemore.
On the other side of the ledger, forecasting demand can be tricky.
Labor’s Housing Accord targeted 1.2m homes over five years, which is about 20% more than was built in 2014-19 (the last five-year period before the pandemic). But Moloney says there’s no one number we could shoot for to alleviate housing pressures.
“Housing demand is a funny thing,” he says.
“It’s not really as simple as how many people are coming into the country and how many are going to fit into each house. People economise on their house. So depending on housing costs, people will move into bigger [or] smaller houses.”
“There is no ‘enough’.
“We just need to be fixing these problems and an ambitious target isn’t, ‘This is the number that fixes the problem’, it’s just [about] creating the impetus for the actual underlying reforms needed to lift housing construction in the country.”
One of those factors needing reform is the labour market. Over the past few years, construction has faced some of the biggest labour shortages of any industry. In 2023 the Master Builders Association estimated that almost 500,000 workers were needed by 2026.
But Moloney says it’s not as simple as bringing in more construction workers through the immigration system.
“It’s much more complicated than just like, push a button, get more construction workers. There’s heaps of different visa classes that workers [can use] to come into the country [but those] programs prioritise tertiary educated professionals.
“[They are] not something that it’s easy to get construction workers through.”
On top of this, Moloney notes that migrants are actually less likely to work in construction than other sectors – construction workers are more likely to have been born in Australia.
According to Moloney and Loosemore, necessary reforms include things like making it easier to recognise overseas qualifications, and helping more Australians get into apprenticeships and project management training.
