Apartment completions shortage looms from 2024: NHFIC

A shortage of multi-unit completions is expected between 2025-32 as household formation is expected to exceed housing supply, the latest State of the Nation report from the government’s expert housing advisers says. According to the National Housing Finance and Investment Corporation (NHFIC), almost 120,000 detached homes and 66,000 medium-density units will be added to housing stock each year between 2021-22 to 2022-23. Bu this is the bare minimum needed, the NHFIC State of the Nation’s Housing 2021–22 research report said as the rental market is already tightening, and demand will lift as international borders reopen. Its expects a strong pipeline of housing supply from now until 2024 - around 184,000 new homes per year (net of demolitions) to add to supply in the next three years. During the next 3 years, 167,400 net completions are expected in Vic, while 147,400 are expected in NSW and 111,200 in Qld, SA (32,000), WA (67,500), Tas (10,100), NT (2,300) and the ACT (13,000). Household formation will hit more than 1.7 million in the decade to 2032, led largely by single-person households. New home builds will outpace household formation by more than 115,000 in 2022 and then 35,000 in 2023, but with net overseas migration set to fully recover to pre-pandemic levels of about 235,000 by 2024-25, household formation is expected to outpace new housing supply by a cumulative 163,400 to 2032. “By 2024-25, household formation and demand for vacant dwellings is expected to slightly exceed construction activity, which looks likely to remain the status quo until 2030-31,” NHFIC said. The main shortfall will come from units, which will face increased demand from new arrivals a well as downsizing brought on by higher interest rates. Property Council of Australia Chief Ken Morrison said the report shows that as the economy and Net Overseas Migration recovers, the demand for new households will outstrip supply. “The projections in this report are concerning, and mirror the same warnings the Property Council of Australia has been making for some time. “The report clearly shows that between 2025 to 2032, Australia will find itself 163,400 homes short of expected demand,” Mr Morrison said. “That’s an average deficit of 20,000 homes a year, every year, until 2032. “Overall housing supply is expected to fall by around one third in just four years from 2023. That can’t be good for housing affordability,” he said. NHFIC said feedback from its business liaison program indicated adequate supply of greenfield land was holding back detached dwelling construction, while slow approvals was hindering multi-dwellings developments. "Given it can take more than 6 years to get new housing supply to market in some areas, pulling back on development decisions now will exacerbate affordability problems in future years when population growth is expected to return to more normal levels. “The development approval process is long and cumbersome. In some instances, it takes six years from when a medium-density and apartment development application is fist lodged to when construction is completed. “A shortage of multi-unit completions is expected in the next 2 to 3 years, especially now the rental market is already tightening, and demand will lift as international borders reopen,” the report stated. It noted the outlook over the next 5 years should also be put into a long-term context. "We estimate that, at the peak of the apartment boom in 2017, a net 106,100 medium-density and apartment dwellings were added to the housing stock compared to 88,300 in 2019–20, just after the beginning of the COVID-19 recession. "In other words, net additions to the medium-density and apartment market were already 17% below their peak as the recession began. "The medium-density and apartment markets are more exposed to the closure of international borders to NOM and particularly international students, whereas the detached dwelling market is more likely to benefit from stimulus programs, such as HomeBuilder or state government building grants."