High Costs and Rates Hinder New Housing

High interest rates and rising construction costs are limiting new housing supply in Australia, increasing rent pressures, excluding first-time buyers, and jeopardizing the goal of 1.2 million new homes in five years. Analysts highlight that Construction, Forestry and Maritime Employees Union (CFMEU) pay deals and shipping disruptions are worsening the situation. While house building approvals stabilize, apartment approvals continue to decline due to high labor costs and regulatory burdens. Experts suggest that a combination of factors, including lower interest rates, rising rents, and coordinated social housing investment, is necessary to improve the situation. Despite a slight easing in construction cost growth, building remains nearly 30% more expensive than pre-pandemic levels. Current dwelling approvals fall significantly short of targets, with forecasts indicating only 138,000 new dwellings for FY25.

Cameron Kusher from PropTrack notes that building approvals are at decade-low levels due to rising costs, labor shortages, and high interest rates. Bridging the price gap between new and existing housing is essential for new housing attractiveness. High interest rates also hamper new development financing, reducing margins, and causing delays. Ben Burston from Knight Frank highlights that failing to meet presale targets and rising costs in the build-to-rent sector are stalling new supply. Wage growth not keeping pace with rent increases stretches tenant affordability. Restrictive planning regimes also contribute to supply issues, with calls for affordable, shovel-ready land. Interest in new housing models, such as land lease communities, is growing, driven by the aging population and offering affordable homeownership solutions for retirees.