Property investors choosing house and land packages as housing starts set to lift

In NSW, 71 per cent more investors took out home loans for the construction of dwellings in December 2024 compared to five years earlier, on ABS data. The Victorian increase was 76 per cent over the same period.

He also highlighted an upswing in building in Western Australia, as well as Queensland and South Australia, where house prices have continued to rise even as the larger states have fallen into a price downturn.

The larger states were more muted. Victoria’s softening house prices meant it made more sense to buy an existing home, rather than a new one, he said, while some investors had pulled back from the market due to the land tax increase. Sydney faced land constraints on its fringe and lower supply of new apartments than seven to eight years ago.

He said a rise in construction costs over the last few years had made house and land packages more expensive, and while the Reserve Bank’s cash rate cut on Tuesday to 4.1 per cent could mark a turning point for the new home market, the impact was modest so far.

He thought that meant only one or two states that would come close to building enough homes to meet the housing target set by the federal government of 1.2 million new homes in five years, which works out to 240,000 homes a year.

Loading

“That target is very unlikely. You’re starting from the back foot, and there’s capacity constraints particularly when it comes to trade labour,” he said.

“Nationally we’re going to fall well short on our projections.”

Tom Devitt, senior economist at residential building industry group the Housing Industry Association, is forecasting roughly 180,000 new home commencements this year due to rising demand for detached houses, given high-rise apartment projects are constrained by labour shortages and planning delays.

This was well below the government target.

“Land and construction costs are too high both for people to afford those kinds of housing volumes and for it to be viable for the industry to build,” he said.

“The other big barrier is the shortage of skilled workers that are going to be needed,” as some were busy building infrastructure projects, he said.

He thought interest rate cuts would boost demand for housing but he did not think they would be as significant a driver as population growth and tight rental markets.

He also warned Sydney and Melbourne had higher land costs than more affordable medium-sized states.

AMP chief economist Shane Oliver said new home building was picking up as some of the shortages of materials and labour ease, but not enough.

He expected about 185,000 new home commencements through this year, below target.

That would be skewed to standalone houses, but the last time Australia had been close to hitting these levels of supply, there was an apartment building boom.

“Even if you ramp it up to 240,000 you’re really just catching up to the level we should have been building over the last few years given the surge in population,” he said.

“The 240,000 is a good aspiration but I think lots of things have to happen for it to come right and so far we’re almost a year into it and we’re a long way behind.”