Housing drives economic growth
The critical role that new housing and construction plays in fuelling economic activity is evident in new independent research undertaken by EY on behalf of UDIA National.
The research illustrates that 7.5 percent of national economic activity is generated by construction – along with 750,000 direct and indirect jobs.
The multiplier effect for demand and services generated across the supply chain is crucial for new jobs creation and more importantly domestic consumption.
In total, the direct and indirect output generated is a staggering $312 billion making the industry one of the most vital to Australia’s economic success.
The origins of Australia’s housing affordability woes can be traced back to the supply deficiency that accumulated in the lead-up to, and throughout the Global Financial Crisis (GFC).
The gap between supply and demand was estimated to have reached almost 160,000 by 2010 (National Housing Supply Council – State of Supply Report 2011).
As Australia emerged from the financial crisis, credit was easier to access, population and net migration increased, and housing demand kicked back to life. However, the mismatch between supply and demand never closed and this ‘supply gap’ fuelled rapid price growth.
Even at the peak of the construction cycle that followed, housing approvals and construction barely touched the underlying level of demand. A generation of homebuyers suffered.
Housing markets are once again at a critical juncture. Housing approvals are slowing, and development and construction pipelines are thinning – representing a medium-term risk to supply.
Yet tentative signs of demand are re-emerging. Prices have stabilised and hint at an upswing, at least in established markets. Credit flows for home lending have eased but still not to the levels of pre-Royal Commission times.
Against a backdrop of recovering demand and more ready access to housing credit, both new dwelling approvals and commencements have fallen by around 20 percent since their peak.
Further, Australian Bureau of Statistics (ABS) data from July and August 2019 indicates that dwelling approval numbers are continuing to contract and are now at their lowest monthly levels in seven years – with commencements likely to follow suit.
If the trends continue, the collision between increased demand, increasing pricing and stalled supply will fuel another cycle of diminishing affordability.
Building a Better Australia.
UDIA National applauds the Federal Government’s endeavours to boost confidence in housing markets.
Comfort around the policy settings for negative gearing and capital gains tax, a new initiative to help close the deposit gap for first homebuyers, and the commencement of efforts to ease access to housing credit are positive steps.
However, we do view the opportunity for further momentum as both urgent and attainable. Initiatives that cement and extend existing policy goals are promoted in our National Priorities for 2020.
1. Streamline red and green tape
Using the review of the Environment Protection and Biodiversity Conservation Act to streamline approvals and curb excessive red tape.
2. Support housing supply
Giving a clear mandate to the National Housing Finance and Investment Corporation (NHFIC) to identify and remove the barriers to efficient housing delivery.
3. Fix planning systems
Offering incentives to the states and territories to streamline and modernise their planning, approvals and zoning systems.
4. Diversify housing stock
Securing better returns on investment in infrastructure by creating more diverse housing stock.
5. Integrate policy reform
Integrating a suite of initiatives on infrastructure, population, cities and housing developments underway across government to yield the strongest dividend.
These goals are within reach and will help ensure Australia stays ahead of the curve on fixing housing affordability, and ultimately, building a better Australia.