Housing completions fail to keep up with population growth

Nerida Conisbee,
Ray White Chief Economist
Australia’s population growth increased by 290,000 people in the 12 months to June 2022 and this rate of increase is expected to continue to increase this year. While this increase is good news for sectors experiencing employment shortages and for our economy, it is coming at a time where the number of houses being built is starting to fall. A construction crisis and a fall in housing approvals is starting to show up in home completions. In some parts of Australia, a lack of housing is showing up in skyrocketing rents and house prices that are remaining high despite the sharp rise in interest rates.

The challenge is most acute in Queensland. Population growth in the state didn’t really slow down in the pandemic. Even though international migration was negative during this time, interstate migration ramped up. Even though this level of interstate migration has slowed, it has been more than matched by international migration. Queensland’s population growth accounted for more than a third of Australia’s growth in the 12 months to June 2022. At the same time, advertised rents in Queensland have increased by $80 per week over the past 12 months. House prices are now increasing again in Brisbane and have been doing so since last November even though interest rates are yet to peak. Queensland has a housing
shortage that is worsening, a situation that is also increasingly the case in other states.

This week, the impact of rising construction costs showed up in the value of homes being constructed. Even though the cost of construction has increased by 20 per cent over the past 12 months, the value of housing construction completion fell marginally across Australia. In Queensland, it fell by almost six per cent. Tasmania, which has had a housing shortage for a long time, saw a decline of 18.8 per cent. The only states which recorded an increase were NSW and WA.

The solution is to get more homes built. Construction costs will start to moderate this year but higher costs of finance mean that the appetite to invest in new housing is very low. Policies that encourage more investors in housing would be the most effective short term solution to solving the housing shortage.