Housing shortage has been making headlines in Australia’s rental market due to a lack of supply, with the national vacancy rate tightening to a near-record low of 1.1% over the March quarter, according to CoreLogic.
This housing shortage has driven asking rents to historical highs across the combined capitals and regions, as reported in Domain’s latest rental report.
The ongoing housing shortage has been caused by a mix of factors, including rising construction costs, increasing interest rates, and a rapidly growing population.
This shortage has been brought about by a combination of factors, including rising construction costs, rising interest rates and a growing population.
Building approvals plummet
Housing shortage concerns are mounting as building approvals take a steep dive in Australia. Higher interest rates and soaring construction costs have driven a significant 31.3% annual decline in building approvals in February 2023, according to the most recent data from the Australian Bureau of Statistics (ABS) (see chart).
ABS head of construction statistics Daniel Rossi stated that private sector dwellings excluding house approvals have reached their lowest level in more than a decade.
“Total dwelling approvals have continued their downward trend since September 2022, following the conclusion of government stimulus and rising interest rates,” he said.
While construction activity is slowing down, Australia’s population continues to grow at a rapid annual rate of 1.6%, driven by increased net overseas migration.
In fact, Australia is on track to experience the biggest two-year population surge in its history, with Treasury recently forecasting 650,000 more migrants would arrive than previously expected this financial year and next.
With population growth expected to outpace housing construction, the National Housing Finance and Investment Corporation (NHFIC), in its 2022-23 State of the Nation’s Housing Report, predicted a shortfall of 106,300 homes over the five years to 2027.
NHFIC chief executive Nathan Dal Bon said the rapid return of overseas migration after the pandemic, along with decade-high construction costs and rising interest rates, is worsening an already tight rental market.
“NHFIC analysis shows housing affordability and supply are likely to remain challenging for some time, underscoring the need for a holistic approach to mitigating the housing pressures Australians are facing,” he said.
Impact on home prices
The ongoing housing shortage won’t just affect Australia’s rental market — it will likely drive home prices higher in the coming years as demand continues to outweigh supply. This imbalance between supply and demand is already starting to show in the current property market, with CoreLogic’s national home value index increasing by 0.6% in March compared to February, despite persistently high interest rates.
CoreLogic’s research director, Tim Lawless, attributed this rise in home values to a combination of factors, including the extremely tight rental market conditions and the additional demand created by record levels of overseas migration. As population growth surges, more people are competing for a limited number of homes, adding further pressure to both rental and property prices.
“Although interest rates are high … it’s clear other factors are now placing upwards pressure on home prices,” Lawless said.
“With net overseas migration at record levels and rising, there is a chance more permanent or long-term migrants who can afford to, will skip the rental phase and fast track a home purchase simply because they can’t find rental accommodation.”
As the housing shortage continues, experts predict that property prices will remain on an upward trajectory. Without a significant boost in housing supply, the imbalance between demand and availability will likely intensify, creating an increasingly competitive market for buyers and renters alike. The combination of rising construction costs, low housing stock, and population growth ensures that housing affordability will remain a key issue for the foreseeable future.
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