Slow wages growth and decline in housing starts threaten economy

Flatlining wages growth, decades of massive price increases and the looming largest decline in housing commencements set to come on in the next calendar year threatens to impact the economy  without response says a new affordable housing report released today by PowerHousing Australia informed by CoreLogic.

As Australia shifts back from the meteoric 230,000 home starts of recent years down by up to 70,000 fewer homes delivered in 2022, (P.10) there is a risk prices may rapidly rise again with it high time to consider growth levers to support jobs, taxes and affordable supply said the 2020 Scale Sector Capacity Prospectus report.

With 40 trades and subtrades receiving work from every new house delivered there is a real need to ensure that the supply rate doesn’t drop below around the 180,000 homes that need to be delivered each year (P.10) to support the demand, underpin the economy and stabilise house price growth at or just above CPI rates.

House prices rose by up to 30% per annum (p.12) in capital cities across the country in recent years which was out of alignment with wages growth but have since come back as we built enough homes as a country.

The risk is that if supply declines again below demand once again and we don’t build enough homes to meet population needs, then excessive price rises will recommence above already unaffordable levels today.

The numbers of homes selling for a reasonably affordable sub $400,000 mark has plummeted over the past 5-10 years. In Melbourne, 28.4% of homes sold for under $400,000 in 2014, today just five years later only 2.5% were sold in the past year under this price point (p.14).

Just 10 years ago in 2009, 39% of homes sold under in Sydney for under $400,000 as opposed to just 3.1% selling below this price point in the past year.

The report flags the issues associated with “not building enough affordable supply and the distortionary impact on pricing, but also points to the affordable housing lever that is still able to be pulled to deliver 10-20,000 new additional homes per year to underpin the national supply rate when commencements finish their steep fall.

If given the right incentive such as property transfer or an NRAS type scheme (P.15) to cover the cost of providing rentals at more affordable below market levels then there is a global asset class of international, institutional and domestic investment as well as supporting partnerships that could emerge to see new pre-commitment to scale developments underpin falling supply.

The activation of the soon to operate NHFIC Research House which is under development, will also support new innovative financing mechanisms (P18-21) in addition to the NHFIC Bond Aggregator to roll out addition streams of funds to the deliver the additional homes that will be needed in 2020-22.

There is an absolute vacuum of housing data that means decisions that impact the future housing market and all those people to aspire to be a part of it are unable to get off the bottom rung of the property ladder. The NHFIC Research House will see greater numbers of homes built particularly in affordable if the policy data and the gaps of provision are made with respondent housing policy that NHFIC can then action.

With a Federal Government now having three Ministries with a role in housing, this data and the best practice emerging options for the affordable dwelling demand group to underpin the housing commencements will become a growing player in the Australian development sector.

PowerHousing CHP Members are one of the last growth levers that can be pulled to reduce the housing commencement downturn with the emerging Sector increasing its size substantially over the past 5 years (p.29) are seeing more homes built by these organisations than public housing with highest achievements.

Innovative projects such as Global Asset Class investment into affordable housing and Build to Rent are coming (p.46) and the Federal Government will mobilise tens of thousands of homes to be built to underpin the jobs, taxes and affordable supply needed to bring the housing market into a position of equilibrium balance.