Developers have zero interest in solving housing shortage

Advertisement

The Australian media has been mostly gushing over National Cabinet’s agreement to magically build 1.2 million homes over five years, starting 1 July 2024.

My view was more cynical, arguing yesterday that the agreement resembled a scene from ABC’s Utopia, with leaders opting for a flashy ‘announceable’ over policies with substance.

The key problem with National Cabinet’s agreement boils down to three key issues.

First, Australia has next to zero chance of building 660 homes per day over five years.

Advertisement

Australia has never before built 240,000 homes in a one-year period, let alone for a sustained five-year period:

Dwelling completions

Where will the extra materials and labour come from to build these homes? And what about the corresponding schools, hospitals and other infrastructure?

Advertisement

It is a pipe dream.

Second, the $3 billion of incentive payments to states are back-ended and would not be received until the end of the five-year period in 2029.

As a result, the states would have to fund the development upfront in the expectation of receiving payment later, and only if they manage to build more than their share of the one million dwellings agreed to last year.

Third, even if the 1.2 million new housing objective could be magically met, it would cause a slew of issues.

Advertisement

As shown below, Australia built huge numbers of high-rise apartments last:

High-rise apartment approvals

The rapid apartment development was accompanied by a significant decline in quality, with thousands of units suffering from cracks, water leaks, structural balcony defects, and flammable cladding.

Advertisement

Obviously ramping up construction rates to meet the lofty 1.2 million homes target would lead to corners being cut and a serious degradation in build quality.

Crikey’s Bernard Keane made the salient point that Australia’s developers have zero incentive to ramp-up construction to meet National Cabinet’s target.

“Contrary to all the commentators who are insisting developers would solve our housing shortage if only we got out of the way, developers have zero interest in solving that shortage”.

Advertisement

“They make vast amounts of money from perpetuating it, and that won’t change unless state and territory governments decide to regulate land release to force development and sale”.

“Short of compelling developers to supply housing — outrageous communism! — the only guaranteed way to increase housing supply is for governments to develop new housing stock themselves, especially social and affordable housing. There was only passing mention of that yesterday”.

It is quite frankly laughable that Anthony Albanese says they have agreed to “build” 1.2 million homes when the federal government’s own contribution through the Housing Affordability Future Fund, assuming it ever passes the Senate, will be just 30,000 homes – just 2.5% of the total!

The only genuine answer to Australia’s housing crisis is to relieve demand by reducing immigration to a sustainable level in line with the historical average (about 100,000 per year):

Net overseas migration

That would end the housing shortage and eliminate the need to bulldoze Australian neighbourhoods and replace them with shoddy high-rise apartments.

Advertisement

Australians are overwhelming against high levels of immigration. Nobody voted for Albo’s Giant Australia. And nobody wants their suburbs to be converted into high-rise slums.

About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.