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All eyes will be on housing production in 2024 to see if the country is capable of ramping up home building to the level needed to alleviate the supply crisis and meet the targets set by the national cabinet. According to Michelle Ciesielski, head of residential research at Knight Frank Australia, much of that success depends on whether developers can be encouraged to come to the table.
On paper, 2024 is starting with many of the same needs that confronted the market in January 2023.
As Ms Ciesielski recalled: “Heading into 2023, it was clear residential properties would continue to remain in short supply as rental accommodation, established homes being listed on the market, or being built across Australia.”
As the year played out, factors related to the economy and population growth exacerbated the critical shortage of housing, leaving Australians arguably facing even more challenging conditions 12 months on.
“As each month passed, the chronic undersupply of Australian housing deepened with migration ramping higher, developers stalling the construction of new homes, and living costs significantly rising, including weekly rents and larger mortgage repayments for both home owners and investors,” the property market analyst noted.
Throughout the year, construction of new homes failed to ramp up, with home building levels leaving experts concerned at the nation’s ability to get anywhere near the level of production required to complete 1.2 million new homes in five years beginning in July 2024, as agreed in August’s national cabinet meeting.
In NSW, for example, to achieve its share of home building, the state needs to see roughly 90,000 approvals a year in order to get 76,000 new homes completed in a calendar period. Breaking the figure down into months, 90,000 new dwelling approvals equate to 7,500 approvals each month.
Data from the Australian Bureau of Statistics from July 2023 revealed that NSW is currently approving roughly less than half of that number per month.
According to Ms Ciesielski, there’s a key lesson to take from 2023 if 2024 is to have a better chance at increasing home building to the level needed to begin to ease supply pressures.
“We’ve learned in 2023 that developers are still the essential element to fast-track new home delivery and they’re currently grappling with planning delays, building costs, and labour shortages challenging the feasibility of their projects,” she said.
Going into the year ahead, Ms Ciesielski commented that much of the country’s building potential hangs on ramping up activity among this cohort.
“Developers will need further encouragement or an incentive to build more homes for private investment in 2024, which is suitable for rental accommodation to reduce the current double-digit annual rental growth,” she said.
Economic trends should support this endeavour, though she noted that developers will need to be ready to take advantage of increased capital looking for investment opportunities.
“Australia has a relatively solid economy going into 2024 with close to full employment, so once inflation is curbed and there is a reduction in the cash rate, there will be active private investors in the property market again with very limited product to buy,” she noted.
“In the Knight Frank Australian Residential Developer Survey 2023, it was found only 11 per cent of projects were designed suitable for investors in the developer’s last project and this was likely to be reduced to 8 per cent in their next project as building homes suitable for owner-occupiers are more favoured as they return a better margin in the current market.”
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