Australian rental crisis will get worse as construction fails to keep pace with demand, report says

In its third report on the state of the nation of housing for 2022-2023, released on Monday, the National Housing Finance and Investment Corporation (NHFIC) said banks increasing their interest rates earlier relative to the Reserve Bank of Australia guidance had reduced the supply of dwellings.

About 148,500 new dwellings are expected to come on to the market in the 2022-2023 financial year. This will fall to 127,500 for net new construction in 2024-2025, with a recovery expected in the following year due to changing macroeconomic conditions and stronger underlying demand.

There will be a shortage of apartments and multi-density dwellings for rent over the medium term, the report found, with net new additions of apartments at about 57,000 a year over five years to 2026-2027, which is 40% lower than the levels of the late 2010s.

The commission has estimated about 377,600 households (a person or group of people who want a home) are in housing need. That includes 331,000 in rental stress, and 46,500 who are experiencing homelessness.

The construction industry has been under pressure, the report said, with tight supply of labour and materials, as well as bad weather resulting in the delay of construction of approximately 28,000 dwellings last year.

Higher interest rates, the availability of serviced land, higher construction costs, long lead times, and ongoing community opposition were also impeding construction.

Rental growth in Sydney and Melbourne has been outpacing rental growth in regional NSW and Victoria, the report found, suggesting people are returning to large cities close to employment centres after three years of the Covid-19 pandemic.

NHFIC CEO Nathan Dal Bon said the rapid return of overseas migration after the pandemic, as well as decade-high construction costs and interest rates, were exacerbating an already tight rental market.