Australian home building ramping up — but in the wrong places

The economist noted that with governments of every size committing to address housing shortages with home building, now is the time to identify the impediments to homes being built where they’re most needed.

“[Otherwise] if currently planned development is any guide — these homes will not be in the right places,” Mr Ryan warned.

In his view, the biggest issue is that a number of roadblocks still exist for the construction and completion of multi-dwelling builds close to desirable amenities.

“The pandemic began a series of disruptions which have limited construction of units and townhouses,” he said.

“The pandemic significantly impacted the building industry. Recognising this, support for the building industry was a key government response to the pandemic. HomeBuilder provided grants for the construction of new homes and renovations, and state governments also provided incentives to build and buy homes.

“But these policies mainly benefited new house construction, mostly in new suburbs on the edges of our large cities.”

For example, in Sydney and Melbourne — home to close to 40 per cent of Australians — the vast majority of homes that have received planning approval are 30 to 50 kilometres from the central business district — far away from jobs, services and transport infrastructure.

The construction of high-density units and townhouses, meanwhile, barely saw a boost through the pandemic. These homes are generally well located, in high-value areas close to services, but take many years to plan and construct.

“These high-density projects were beset by uncertainty about housing demand, financing and the state of the economy throughout the pandemic,” Mr Ryan explained.

Further stymying the pipeline of high-density buildings, tradespeople and other resources were diverted to house and infrastructure construction elsewhere.

Ultimately 120,000 fewer homes — almost all units and townhouses — were built throughout the pandemic than in the period from 2016 to 2019.

Moreover, as the economy recovered from the pandemic, new unit and townhouse construction has continued to fall, which Mr Ryan puts down to factors that are not easily remedied.

“New challenges have emerged for project developers. Supply disruptions from the war in Ukraine and lockdowns in China mean material costs have increased considerably; tradespeople remain scarce; and higher interest rates have perpetuated project financing difficulties,” he said.

The good news is that addressing this facet of the housing supply issue is relatively simple, according to Mr Ryan, as long as governments are willing to pull certain policy levers.

“A key reason housing is not being provided where it is demanded are restrictive planning and heritage rules, which make new development difficult and costly. They also only give current residents a voice in development decisions, at the exclusion of those who would benefit from more homes,” he said.

Other policies and coordination, he said, are also needed to alleviate the challenges the construction industry is facing, so projects can be commenced as soon as possible.

Slashing stamp duty and introducing downsizing incentives were two such initiatives that he urged governments to seriously consider.

“Policy changes can also unlock the housing we already have. Moving away from stamp duties which penalise moving, to broader land taxes that incentivise people to live in homes that best suit their current circumstances has big benefits and doesn’t require any new development. Current exemptions for the family home in pension asset tests also discourage many from moving,” Mr Ryan said.