State of Australia’s housing market laid bare

As the nation tries to come to terms with the ongoing rental crisis and what by some measures is the most unaffordable housing in living memory, the housing issue is shaping up to be a key political battleground for both the next year and for the next federal elections. .

Given the debate is hotly contested by the major parties and the Greens, it is worth exploring where the demand for new housing stock is coming from and how the nation is performing in new home construction compared to past building cycles.

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New domestic question

Before we get into the numbers, we need to make an important distinction, the numbers that follow are based on the number of new homes needed in net terms, not the number of homes that need to be completed.

According to the latest comparable data from the ABS, around 15% of new homes completed do not result in a net increase in overall housing stock.

This may be due to the impact of rebuilding, the demolition of existing homes to make way for new developments and infrastructure, or a number of other factors.

Over the past 40 years, the source of demand for new homes resulting from population growth has changed dramatically.

In the year to June 1993, 17.8% of demand for new homes resulted from the impact of migration, assuming a constant household size among the population.

According to the latest ABS data covering up to the September quarter of 2023, 83.2% of demand driven by population growth comes from net migration.

But there is another factor besides population growth that influences housing demand; the average size of national families.

For example, in 2006, the average household size was 2,606 people. It may seem a little pedantic to measure something to the third decimal place, but when the divisor is the entire population of Australia, every little bit counts.

According to the latest ABS data covering up to June 2023, the average household size is now 2,502.

When the difference is applied to the current population as measured by the ABS Population Clock, Australia needs around 435,000 more homes than it would have if household sizes had remained the same as in 2006.

From the mid-2000s through 2011, changing household size was not a major factor in housing demand, contributing up to a peak of 4.5% of overall demand during a given year.

The majority of demand resulting from changing household sizes occurred in 2020, when 25.3% of new home demand was driven by this factor.

When put into context with demand from natural population growth (births minus deaths) and net migration, net migration has been by far the main driver of housing demand since the current ABS data on household size began in 2005 .

Since records began, between 44.0% and 67.5% of demand for new housing (excluding the pandemic) has resulted from net migration, which figure currently peaks in data covering up to the end of the June quarter of 2023. .

New domestic statistics actually

According to the latest ABS data covering to the end of the March quarter of 2024, housing completions are currently at their lowest level since the September quarter of 2014 on a 12-month rolling basis.

RBA forecasts predict that residential construction activity will remain weak until the end of the year, before starting to recover in 2025.

When compared to population size, the picture gets even worse, with the current level of housing completions per 100,000 people sitting at the second lowest annual level on record.

However, when compared to the decline in construction sector activity observed in past cycles, the current reduction in activity from its relative peak is down 21.9% versus 19.8% during an average cycle.

While the level of new home completions per capita is extremely weak compared to the last 40 years, compared to other major nations in the Anglosphere, Australia’s performance is still absolutely exceptional for the right reasons.

Despite strong construction growth in the United States, Australia is still completing 49.6% more homes per capita than the United States, 15.8% more than Canada and 135.3% more more than in the UK.

Tarric Brooker is a freelance journalist and social commentator | @AvidCommentator

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