Housing supply crisis keeps inflation above target
Annual housing inflation accelerated to 5.5 per cent over the year to June 2024, well above the average inflation rate of 3.8 per cent.
Master Builders Australia chief economist Shane Garrett said this was predominantly driven by rental price growth of 7.1 per cent over the year reflecting a lack of rental properties.
“For owner occupiers, the price of new dwellings is 5.4 per cent up on a year ago. This is partly the result of labour shortages and other cost pressures in the new home building market.
“It’s further evidence that if we are to win the battle against inflation, we need to pull out all stops to build new homes.
“Building approvals released earlier this week show that June 2024 was the worst month since 2012 for higher density home building approvals.
“We need much higher volumes of new home building on this side of the market if rental market pressures are to be relieved.”
CEO Denita Wawn said: “Whether it’s detached housing or higher density, the same constraints and cost drivers apply: workforce shortages, woeful productivity, lack of critical infrastructure, high taxes and charges, slow approval processes, and costly union EBAs.
“Inflation will remain too high if we don’t get a circuit breaker from Government to facilitate the building of more homes for both owner-occupiers and renters.
“The housing shortage makes it difficult to contain inflation. This puts pressure on the Reserve Bank to lift interest rates leading to even higher rental inflation and less building activity.”
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6 comments
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Clakka
Return to home pageAnyone believe anyone in a position to fix this mess is actually trying?
All I see are corporate pretenders who are happy with their ‘I’m OK Jack attitude’.
The problem appears to have many components including:
1) the Banks ratcheting up interests rates on floating point loans;
2) the practice of variable interest rates throughout the term of a housing loan;
3) the refusal of the government to grandfather negative gearing to reduce buyer demand,
4) the refusal to limit new negative gearing to new builds to create a secondary ”used housing” market,
5) the push from building supplies manufacturers & retailers to ever increase the high cost of building products,
6) the huge costs extracted by local government for service provision,
7) the expensive costs of ”professional building services” to create building lots and monitor the build.
Then in regional & remote areas there is the on-going shortage of tradies who charge exorbitant ”travelling costs”, as much as $70,000 per build for a 35 hour week worked over five days rather than longer but fewer days.
Most of all, it is the very short-sighted government policies charging apprentices to get professional training AND suffer ridiculously low pay rates that make working at a fast food outlet much more profitable for the U18 teenagers preferred as employees …. because the pay rate increase about $10 per hour when they turn 19 years old.
Think the MBA is complicit in the housing Ponzi by their own missive avoiding some uncomfortable truths.
Median house ‘values’* over past decade have stagnated e.g. Sydney barely doubled (7% benchmark on price mover over ten years), working age cohort too since 2009, but kept up on paper by temp residents like students counted into the population (and falsely blamed for ‘housing crisis’).
*Apts’ decline is much worse….
Now, brace yourselves, the phenomenon that hath no name, the boomer bubble have joined the oldies in or transitioning to retirement, downsizing, aged care and ‘the big die off’ of 7+ million; 5hat should help stagnation in both values and prices into the future….
Former Judge, Kevin Bell, appeared on ABC Breakfast News today and spoke about his new book – ‘Housing, the Great Australian Right’. In a few sentences he exposed the cause of the crisis and the solution.
This is a summary – the current crisis goes back to treating housing as an investment, with the welfare of people an after-thought. This must be reversed. Make the human right to housing the central focus of policies. Reimagine ‘the great Australian dream’ of housing as ‘the great Australian right’ to housing.
https://www.judicialcollege.vic.edu.au/news/hon-kevin-bell-ao-kc-release-new-book-australias-housing-crisis
My idea – to quicken the resolve of politicians, hold a referendum to seek a mandate that those govt officials (Federal, State & Local Councils) involved in provision of housing and land releases are forced to sleep in tents until the problem is stabilized. A simple YES / NO vote by the people. That will focus their minds.
In my regional area we noted how, during the period of historically low interest rates, housing was snapped up by investors as soon as it came on to the market – a real estate agent I know pointed out the obvious : that when money is so cheap to borrow investors are inevitably going to seize the opportunity to take advantage of that availability and look for investment opportunities.
With government policy rewarding speculative investment in real estate by way of tax write-offs through Negative Gearing and Capital Gains concessions for ‘flippers‘ it is inevitable that real estate (i.e existing houses as opposed to new builds) becomes the most attractive investment with the prospect of rental income through an AirBnB or longer term rental.
So, in my local area, and the problem is replicated throughout Australia, there are no longer existing homes available for purchase or rental so prospective home buyers are forced to turn to building or buying a new home.
Pretty well all new land releases are in the hands of private property developers who will only release a new development when demand is such that maximum returns can be achieved. If the developers released more of the land they have hoarded then clearly land prices would drop or at least stabilise but developers aren’t going to do that, are they ?
My solutions include :
eliminating incentives like negative gearing and capital gains concessions OTHER THAN FOR NEW BUILDS (caps. because it is so fundamental).
Incentivise governments (federal, state and particularly Local Government) to develop and bring to market crown land with subsidies and free of a profit motivation.
Ensuring that we are training and educating workers in the building and construction trades – I note that the government are already reinvigorating the TAFE system which had been gutted by former government policies.
It’s a start !
Andrew Smith, I agree – see my and NEC’s comments on Builders optimistic as home approvals decline
All other comments here spot on.