The shortage of housing in Australia is set to become much worse over the next five years, a new report has shown.

The National Housing Finance and Investment Corporation has released the 2022/23 edition of its State of Nation’s Housing report, which provides updated projections for new housing demand and supply across Australia over the next decade.

All up, the report said that the outlook for housing supply had deteriorated since its last report.

As a result, over the five years between 2023 and 2027 (financial years ending June 30), the organisation now expects demand for new dwellings as driven by new household formation to outstrip new dwelling supply (new dwelling completions less withdrawals) by a total of 106,300 dwellings.

Over the ten years between 2023 and 2032, new housing demand will outstrip supply by a lesser 79,300 dwellings.

Particular challenges will be seen in the apartment and medium density housing sector, with NHFIC anticipating shortfalls in net supply additions relative to household formation of 62,300 over the five years to 2027 and 81,200 over the decade to 2032.

Nathan Dal Bon, CEO of NHFIC, said the deterioration in the outlook has been driven by two factors.

First, the reopening of Australis’s borders in 2022 has led to a stronger than anticipated recovery in population growth.

On this score, the Centre for Population expects net overseas migration to increase by 268,000 between 2022 and 2024.

Recent data suggests this could be considerably higher, NHFIC says.

Beyond that, projections for new supply (new completions less withdrawals) have been impacted by sharper than expected rises in interest rates along with supply disruptions associated with poor weather and tight labour and material supply.

On the latter set of issues, NHFIC says that as many as 28,0000 dwellings were delayed in 2022 alone whilst builders were making allowances of up to 40 percent in additional costs to cover potential unexpected delays.

As a result of all of this, NHFIC expects only 148,5000 new dwellings (net of demolitions) to be delivered in 2022/23 and for net new construction to fall to 127,500 in 2024/25.

“The rapid return of overseas migration together with a supply pipeline constrained by decade-high construction costs and significant increases in interest rates is exacerbating an already tight rental market,” Dal Bon said.

“NHFIC analysis shows housing affordability and supply are likely to remain challenging for some time, underscoring the need for a holistic approach to mitigate the housing pressures Australians are facing.”

The latest report comes as low and middle income Australians are being impacted by a massive shortage of affordable housing.

All up, NHFIC says that on conservative estimates, around 377,600 households are operating in a state of housing need. This includes 331,000 households in rental stress and 46,500 households experiencing homelessness.

Some indications suggest that this may understate the problem. As of June 2021, for example, there were 177,600 households languishing on social housing waiting lists – a number which suggests that the real homelessness figure may be higher compared with that quoted above.

The shortage is particularly evident in the rental market, where Domain reported in early March that February vacancy rates across Sydney, Melbourne, Brisbane and Perth stood as low as 0.9 percent, 0.8 percent, 0.6 percent and 0.3 percent respectively.

Generally, vacancy rates of around three percent are considered to represent a balanced market.

The report also comes as the Government’s legislation to create the $10 billion Housing Australia Future Fund and the National Housing Supply and Affordability Council remains in limbo as the package of reforms failed to pass the Senate during last week’s parliamentary session.

The fund would support the construction of 30,000 social and affordable homes over the next five years.

It is a key part of the Commonwealth commitment as part of an accord with states governments and industry to address housing supply and affordability needs.

Housing and homelessness organisations say the data shows the need for more action to address housing needs, including by passing the legislation to create the new fund.

In a joint statement Community Housing Industry Association, National Shelter, Homelessness Australia called on the parliament to pass the laws.

“The status quo just isn’t working. Everyone knows we need a new approach, backed with robust and growing funding and a strong national housing agency to coordinate delivery,” said Wendy Hayhurst, CEO of Community Housing Industry Association.

“We are hopeful that the Government and crossbench can reach a consensus swiftly, because this crisis is urgent.”

Property industry lobby groups agree, adding that passage of the bills need also needs to be accompanied by further action to boost housing supply.

“This emerging 79,300 home deficit (over the decade) is a grim warning,” Property Council Chief Executive Mike Zorbas said.

“It reminds us that state, territory and local governments simply have to lift their run rates on housing supply across the at market, key worker and social housing spectrum.

“We also need to urgently move the housing needle by creating the right investment conditions for new build-to-rent housing, purpose-built student accommodation and retirement living communities.

“We need this for our existing population and to continue to attract the skilled migrants and students who support our education sector and bridge the huge gaps in our mining, construction agricultural and retail workforces nationally.

“All parties in the Senate also need to give fair consideration to passing the Australian Government’s housing bills, which will boost social and key worker housing around the country.”

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