The National Housing Finance and Investment Corporation has projected that the demand for new housing will drop by 290,000 dwellings over the next five years due to constrained migration.
As part of its flagship housing report, NHFIC said the biggest impact will be felt in the apartment and rental segments of the housing market, with weakness in net apartment completions set to extend until 2025, when just 27,000 new apartments are expected.
Before the pandemic, the country was on track for more than 30 million people by 2030.
Treasury now expects record low population growth of just 0.2 per cent in 2020-21 and 0.4 per cent in 2021-22.
NHFIC chief executive Nathan Dal Bon said new housing supply would likely exceed new demand if population growth—one of the fundamental drivers—remained unchanged behind international borders closures.
“The current shock is unprecedented in modern times and with this comes a highly unpredictable outlook.
“The impact will also be uneven across different segments of the housing market, particularly for apartments, and for different locations across Australia,” Dal Bon said.
Under its central scenario new demand for housing will plummet across 2021 and 2022 from pre-Covid levels of 176,300 and 186,900 to post-Covid levels of 54,200 and 91,600 respectively.
However, from 2023, on the back of positive net overseas migration and a strengthening economy, housing demand is expected to lift to 144,700 dwellings and move back close to pre-Covid levels at around 178,800 dwellings by 2024.
Despite record levels of residential construction over the years prior to Covid-19, supply outpaced demand by only 4,500 dwellings for the years 2017-2019.
The shorter term period where new supply exceeds new demand can now be seen as a “catch up” for much longer periods of undersupply seen in the earlier 2000s, the report says.
“While there have been many challenges during 2020, there has also been a great degree of resilience in the property sector to date,” Dal Bon said.
“Due to historically low interest rates and government stimulus, construction activity and housing prices have held up better than many anticipated.”
New dwelling construction fell just 1.9 per cent in the September quarter—as apartment-building work dropped 6.2 per cent and new house construction picked up 1.1 per cent, supported by the federal government’s Home Builder stimulus.
Dal Bon said credit availability didn’t appear to be limiting construction activity, with lending to developers broadly tracking building approvals.
New housing supply could also be lower than projected if developers face greater difficulties in obtaining the level of pre-sales necessary to obtain project finance for new medium to high-density developments.
“However, credit could tighten in pockets such as capital city CBD apartment markets if growth in net overseas migration remains sluggish,” Dal Bon said.
The report suggested that rental affordability would improve towards the later stages of 2022, particularly in more densely populated eastern seaboard cities, with fewer households forming to soak up new supply.
Sydney and Melbourne in particular would likely experience downward pressures on rents in turn improve overall rental affordability, although the report said the real impact will differ across geographies and household income distributions.
The report said that longer term trends of declining affordability, particularly for low-income households in the private rental market were likely to persist, particularly if supply is not responsive to demand when it recovers.
To bridge the gap in demand between current enthusiasm for new home building and the hard reality of demography, the Property Council of Australia said the Home Builder stimulus program should be extended nationally once more.
Property Council chief executive Ken Morrison said the delayed population restart was a key risk to Australia’s recovery and critical for the residential construction industry.
“Next year holds many challenges for all Australians including the huge economic activity gap that exists without normal immigration levels growing the economy and creating jobs,” Morrison said.
“Home Builder has been the most successful federal stimulus for the construction industry of the past two decades.
“With no substantial immigration likely next year, it makes sense to extend this economic bridge further.”
Treasury, which is forecasting a 7 per cent rise in housing investment in 2021-22, reported that Home Builder, along with other housing policies and low interest rates, is continuing to “pull forward demand”.