The first Budget by NSW Labor highlighted the critical need for housing in New South Wales, with a $2.2 billion Housing and Infrastructure Plan set out.

Minister for Planning and Public Spaces&nbsp;Paul Scully said housing affordability and availability is the biggest single pressure facing the people of New South Wales, with mortgage payments or rent the largest expense for most households.

"The Minns Labor Government is today outlining significant long-term reform in NSW to begin the task of confronting the housing crisis," Scully said.

The NSW Government’s Housing and Infrastructure Plan includes:

• $1.5 billion to build infrastructure such as roads, parks, hospitals and schools to support the construction of new homes across Sydney, the Lower Hunter, Central Coast and the Illawarra.

• $400 million reserved in Restart NSW for the new Housing Infrastructure Fund, to deliver infrastructure that will increase housing supply across the State.

• $300 million for Landcom to accelerate the construction of thousands of new homes, with 30 per cent affordable housing.

The&nbsp;Real Estate Institute of NSW (REINSW) says however it is unclear how new supply will actually be delivered, and the Government’s pursuit of its so-called rental reforms are a continuation of the “data-ignorant” approach that has exacerbated the rental crisis.

REINSW CEO Tim McKibbin said it's clear the Government recognises the critical housing shortage in the state, including social and affordable housing, and the need for action on new housing construction.

“However, the glaring omission is the detail on how this will be achieved. The $224 million for the Essential Housing Package and the minimal commitment of a few thousand public housing dwellings over the long-term won’t scratch the surface in the context of the enormity of the housing crisis. Tangible and significant supply outcomes are needed but they have not been forthcoming," McKibbin said.

He said that to encourage new housing supply, developers need to be incentivised to proceed with projects, especially with the challenges of rising materials and labour costs.&nbsp;

“Tax reform is the clear opportunity to improve new project feasibility," McKibbin said.

"Holding local Governments to account to meet the required new housing targets in their areas is another opportunity. We must also take a new evidence-based approach to addressing the rental crisis. Ignoring the data has not worked. It has led to an environment in which investment in residential property is discouraged.

“It’s important to remember that the provision of social and affordable housing is the Government’s job. It’s not the job of private investors.

“The impact of tenant-centric legislation has been to vastly shrink the rental pool. More investors are selling their properties and as such, tenants have less choice. Regrettably, this Budget appears to commit the Government to the existing data-ignorant approach which has made the rental crisis so much worse."

McKibbin said we need to "“flip the script and begin to encourage investors to make properties available for rent."

"This demands a reconsideration of current proposed reforms which seek to divide the interests of tenants and landlords. Ideally, the tenant-landlord relationship should be symbiotic, based on fairness and respect, yet Government’s reforms promote an adversarial environment in which disputes are encouraged, which harms everyone involved."McKibbin said the REINSW is ready to work with the Government and all stakeholders on an evidence-based approach to the housing crisis.&nbsp;

“It’s worth noting that if people are encouraged to invest in residential property, this will improve feasibility for new development projects."

REINSW CEO Tim McKibbin said it's clear the Government recognises the critical housing shortage in the state, including social and affordable housing, and the need for action on new housing construction

alisonwarters@gmail.com

NSW Labor's $2.2 billion housing plan unclear: REINSW

Expert Commentary - CoreLogic&nbsp;Economist Kaytlin Ezzy

The medium to high-density sector has increasingly become an important part of Australia's residential real estate market, with units steadily making up a larger portion of Australia's housing stock. In August, CoreLogic estimated that units made up 25.9% of national housing stock and around 30.4% of Australia's capital city housing stock, up from 19.6% and 22.9% at the start of 2010, respectively.

The continued reliance on the unit sector to deliver fresh housing stock is particularly evident across some of Australia's largest capitals, including Sydney and Melbourne, as well as the ACT, where limited land supply has made further development of low-density dwellings increasingly difficult.

The medium to high-density sector is increasingly becoming an important tool in delivering additional housing stock for Australia's growing population, especially as households continue to congregate in metropolitan areas.

With a median value of $637,593 (around 30% cheaper than capital city houses), capital city units offer a significantly more affordable entry point for first home buyers, as well as a lower maintenance option for both investors and downsizers. However, the latest National Housing Finance and Investment Corporation (NHFIC) ‘State of the Nation's Housing’ report forecasts a national housing deficit of approximately 106,300 by 2027 (later upgraded to 175,000), with around 59% of the shortfall expected in the unit market.

Below-average unit approvals and completions Figure 1 shows the latest ABS building approvals data by property type. In July, 4,490 units were approved for construction, down -19.9% from the month prior and -39.8% below the decade average. Excluding a handful of volatile months, the trend in new unit approvals has largely held below the decade average since mid-2018 and well below the trend in house approvals since late 2017.

<img alt="CoreLogic" data-entity-type="file" data-entity-uuid="0c267df5-205b-44c4-bb6b-a811f5b6313f" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202023-09-18%20at%2010.07.28%20am.png?VersionId=ysJNgYMkBWG6IxidE.i2DPC7Q7ZnwJ0i" />

Unsurprisingly, the latest ABS building activity data, displayed in Figure 2, also shows an easing in unit completions, while house completions have held close to the decade average.

In the past 10 years, units have accounted for approximately 41.7% of total new housing completions nationally. However, over the March quarter of 2023, units made up just 37.1% of completions, holding around -27.1% below the decade average.

<img alt="CoreLogic" data-entity-type="file" data-entity-uuid="64e942f2-c3c1-4f6a-9f31-ffa89eda0a02" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202023-09-18%20at%201.30.39%20pm.png?VersionId=.WXQWWowVnDVEl3YxvSh04nIheeftAeO" />

Despite surging demand, developers and consumers alike are exercising a more cautious approach in light of uncertain economic conditions, weaker capital gains, high construction costs, a tight labour market for trades and rising interest rates.

With fewer unit projects set to move through the construction pipeline, it’s likely completions will continue to ease, with units making up a smaller portion of new housing stock over the coming years. It is worth noting that while completions and approvals are low, the pipeline of unit projects yet to be completed is relatively high.

Unit commencements have shot up from 12,782 in the December quarter of last year to 19,981 through the first quarter of 2023. Constraints across the building sector have meant the number of units approved but yet to be completed have swelled to over 158,000 as of March this year. However, both unit commencements and the total number of approved units in the pipeline yet to be completed, remain below the highs of the mid-2010s. While unit construction fails to reach new highs, demand pressures for housing remain high.

<img alt="CoreLogic" data-entity-type="file" data-entity-uuid="15414574-e22a-4d1a-a823-5d165d1327a6" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202023-09-18%20at%201.30.31%20pm.png?VersionId=2gmohdUX7gB18pLn253g35LBENetFEZ4" />

The impact of a short fall on unit values Units have historically been a relatively affordable entry point for owner-occupier buyers looking for a first home, or investors looking for decent rent yields. In a low and declining interest rate environment, the apartment boom of the 2010s contributed to persistently low growth in annual rents across the country (averaging about 2% per year), and through the recent pandemic upswing, detached house values ballooned relative the unit sector.

However, in the face of rising demand and record low interest rates, the early 2020’s have not been marked by the same uplift in unit construction. At the moment, an elevated pipeline of units under construction, high interest rates and low consumer sentiment could temper unit demand and price growth.

But once the pipeline is worked through, Australia faces a relatively low number of approved projects, which may create a temporary vacuum in new unit supply. With the cash rate potentially easing in 2024, greater purchasing demand could fuel a stronger price boom in the unit market at this time.

The medium to high-density sector has increasingly become an important part of Australia's residential real estate market, with units steadily making up a larger portion of Australia's housing stock

Staff Writer

Unit shortage looms over Australia: CoreLogic

Market forces that have challenged the Queensland development industry are subsiding and giving developers renewed confidence to begin projects to meet high migration to the state, industry leaders said today.

At a special Round Table forum hosted by property industry specialists Media Hunt in conjunction with Ocean Road Magazine, the head of Australia’s largest building company, Hutchinsons, and other industry leaders, reinforced the incredible future ahead for the industry.

Addressing industry at Royal Pines Resort today, Hutchies Chairman Scott Hutchinson, the keynote speaker, said high inflation and higher interest rates had created a “triple whammy” for the market – with build costs sending builders to the wall, developers unable to make projects feasible, and buyers wary given upward interest rate trends.

However, he said these forces were stabilising and the challenge now would be for the industry to deliver projects to meet the high migration demands which are seeing almost 50,000 people a year coming to Queensland.

“The big challenge now is how to we find enough tradespeople to deliver much needed projects to the market in such a high migration environment where housing demand has probably never been higher,” Hutchinson said.

“This is accentuated by the fact that there is so much competition for trades due to the extraordinary amount of public infrastructure spending by governments because of Queensland’s popularity, growth and the coming 2032 Olympics.”

His comments were echoed by integrated property advisory group Urbis, which added that careful planning was required to ensure the retention of the lifestyle that was drawing almost 1000 people a week to Queensland.

Paul Riga, Director of Urbis. said we are all acutely aware of the growth trajectory that Southeast Queensland is on and there is certainly a dire need to make sure we get our growth plans right as we manage the exciting future prospects of the region.

“The Gold Coast is forecast to see an increase of around 150,000 residents between 2022 and 2037, requiring around 60,000 dwellings," Riga said.

“To achieve this we will need to ensure opportunities for low and middle income housing with strong connectivity to public transport and core lifestyle amenity.&nbsp; In doing this we cannot lose sight of the importance of urban design and the increased sense of community this can bring.”

Discussion also focussed on how governments could improve the viability of the industry to meet market demand and address housing affordability.

Dan Marino, Director of Hickey Lawyers, said scrapping the GST on developer sales would improve viability.

“Where escalated building prices and increased costs of finance are frustrating feasibilities, giving back tax and stamp duty relief to developers may&nbsp;reverse an unfeasible development with a 7-10% starting margin that may result in more active development,” he said.

“Reform of tax to accelerate development and building activity is problematic but could definitely&nbsp;be considered.”

Developer builders John Kearney (Greyburn) and Robert Badalotti (Azzura) both acknowledged the advantages of retaining their own builders in the current market.

“It has been a definite advantage for us in terms of being able to control price and create more certainty around delivery for our customers,” said Kearney, of Greyburn Builders, who is also developing Rhythm Kirra Hill at Coolangatta.

[smartcode_project:default project_id=112169 project_image_fid=207550]

Robert Badalotti, one of the most longstanding Gold Coast developers who has delivered thousands of homes and apartments in Queensland over three decades, is set to embark on the second stage of the four stages of his $3.1 billion Imperial Square development at Southport.

“Having our own build team combined with the strong migration certainly gives us the confidence to begin the next stage,” said Mr Badalotti.

“I am very bullish about the Gold Coast and in particular Southport as the city’s undisputed CBD. Migration will remain very strong over the next decade and people including retirees will continue to flock to the Gold Coast.”

Having sold out his first stage Regal Residences, Azzura is now planning to release Monarch Place to the market which will include luxury residential apartments and a state of the art over 65s retirement village.

Jayde Pezet of the city’s leading boutique project marketing firm Pezet Matheson echoed the sentiment with strong sales attributed to developers with excellent credentials, longstanding industry relationships, and a track record of delivering on promises.

[smartcode_project:default project_id=108747 project_image_fid=193023]

“We are seeing an unprecedented time in the construction sector. However, sales remain strong and developers that are highly credentialed, hold long standing industry relationships and can deliver are succeeding in the current market,” he said.&nbsp;

“Many of the larger companies have announced that they will be forging ahead by creating their own construction arms, seeing the emergence of the developer/builder. Though the underlying fact is that there is a shortage of skilled trades, which is not simply overcome by additional construction companies.”

Matt George of Urban Activation stressed the significance of a builder's history, delivery track record, and financial strength in instilling buyer confidence.&nbsp;

“Developer history, delivery and financial strength of the builder that the developer has partnered with are the key to buyer confidence. These are the questions we are hearing from every purchaser prospect.”

He said purchasers are looking for certainty, however often they are too late for the projects under construction and want as much certainty as possible for an off the plan purchase.

[smartcode_project:default project_id=112730 project_image_fid=211248]

“Where escalated building prices and increased costs of finance are frustrating feasibilities, giving back tax and stamp duty relief to developers may&nbsp;reverse an unfeasible development with a 7-10% starting margin that may result in more active development,” he said.

Andrew Erwin of NPA Projects predicted a shift towards smaller boutique developments over towering structures. He emphasised the pivotal role of esteemed, reliable builders in instilling buyer confidence.&nbsp;

[smartcode_project:default project_id=139511 project_image_fid=213457]

“Future off-plan projects should have construction underway or a definitive commencement date before launching marketing campaigns to assure buyers of the builder's reliability.”

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