Housing construction in Australia is currently lagging behind both estimated demand and the government's target of constructing 1.2 million homes within five years, according to data released by the Australian Bureau of Statistics on Wednesday. Experts attribute this shortfall to several factors, such as shortages of labor and materials, complex and slow planning processes, and elevated interest rates. However, some of these issues may be temporary. As pandemic-related shortages ease and planning reforms are implemented, construction activity could potentially increase and align with the set targets. In December, the number of dwellings that commenced and completed construction decreased compared to previous quarters and remained significantly below levels observed in recent years. To meet the government's objectives, approximately 57,000 new homes would need to be built each quarter between 2024 and 2029. To meet estimated new housing demand from Housing Australia, just over 43,000 homes per quarter are required. Current construction rates are approximately 20,000 houses below this demand target and nearly 30,000 houses below the government’s Housing Accord goal. Joey Moloney, Deputy Program Director of the Grattan Institute’s housing and economic security program, characterized the government's 1.2 million homes target as ambitious, noting that it has become more challenging since its announcement due to a downturn in the construction sector. Data indicates a decline in dwelling approvals and construction commencements each year since 2021-22. While the number of completed dwellings is increasing, it remains below the peak levels of the previous decade. Professor Martin Loosemore from the University of Technology Sydney, points to both short-term and long-term factors influencing this trend. While supply chain issues have recently increased material costs, he notes that prices are stabilizing. He identifies skill shortages, lengthy and costly planning approval processes, and a lack of innovation within the industry as key issues hindering supply. Productivity in dwelling construction has remained stagnant for three decades, partly due to the industry's fragmented nature. Loosemore highlights that the construction sector has the highest number of independent contractors compared to any other industry. Forecasting demand presents another challenge. Labor’s Housing Accord aims to build 1.2 million homes over five years, which is approximately 20% more than the number built between 2014 and 2019 (the five-year period preceding the pandemic). However, Moloney suggests that there is no single target number that can alleviate housing pressures. He explains that housing demand is complex and influenced by factors beyond population growth and household size. People adjust their housing choices based on costs, opting for larger or smaller homes depending on affordability. Moloney emphasizes that continuous efforts to address underlying problems and implement reforms are necessary to boost housing construction in the country, rather than focusing solely on achieving a specific target number. One area requiring reform is the labor market. In recent years, the construction industry has experienced significant labor shortages. The Master Builders Association estimated in 2023 that nearly 500,000 workers would be needed by 2026. Moloney suggests that simply increasing the number of construction workers through immigration is not a straightforward solution. He notes that existing visa programs prioritize tertiary-educated professionals, making it difficult to attract construction workers. Additionally, Moloney points out that migrants are less likely to work in construction compared to other sectors, with construction workers more likely to be Australian-born. Moloney and Loosemore suggest that necessary reforms include streamlining the recognition of overseas qualifications and increasing access to apprenticeships and project management training for Australians.
