“For example, we expect around 184,000 new homes per year (net of demolitions) to be added to supply over the next three years, while between 2025 and 2032 we also expect the formation nearly 180,000 new households every year.”
Household formation – the number of single people or groups of people living in a dwelling – will reach more than 1.7 million in the decade to 2032, according to NHFIC’s State of the Nation report, largely conducted by one-person households.
New home construction will outpace household formation by more than 115,000 in 2022 and 35,000 in 2023, but that’s where the good news ends.
With net overseas migration expected to fully return to pre-pandemic levels of around 235,000 by 2024-25, household formation is expected to exceed new housing supply by a total of 163,400 by 2032 .
“By 2024-25, household formation and demand for vacant homes are expected to slightly outpace construction activity, which is expected to remain flat through 2030-31,” the NHFIC said.
The main shortfall will come from units, which will have to deal with an increased demand for new arrivals as well as a reduction in the workforce caused by higher interest rates.
The NHFIC modeling assumes the Reserve Bank of Australia’s past forecast for the cash rate to remain unchanged at the current record high of 0.1% until 2024, a scenario that is now highly unlikely.
RBA Governor Philip Lowe indicated earlier this month that the bank had advanced its expectations by at least 12 months, and that a monetary policy tightening cycle could “plausibly” begin later this month. year.
The NHFIC said feedback from its business liaison program indicated that an adequate supply of greenfield land was holding back single-unit housing construction, while slow approvals were hampering multi-unit housing development.
“The development approval process is long and tedious. In some cases, it takes six years from the filing of an initial development application for mid-density buildings and apartments to the completion of construction.
“A shortage of multi-unit home completions is expected in the next 2-3 years, especially now that the rental market is already tightening, and demand will increase as international borders reopen,” the report said.
This will add pressure on house prices over the medium term. In 2021, prices increased by an average of 23% in Australian capital cities. Economists expect growth to continue this year before falling back in 2023 and the year after, as annual new supply exceeds new demand.
Strong price growth in recent years has been spurred by low interest rates and government subsidies that have helped alleviate some of the pent-up demand, such as a long line of first-time home buyers trying to enter the market. According to the NHFIC, the shares held by the investors have been transferred to the first buyers.
Strong demand for single-detached homes also translated into strong price growth in the non-residential portion of the market.