Residential Development Council Leadership Summit, Sebel Heritage, Yarra Valley
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Australia faces a serious housing shortage – a shortfall of around 85,000 homes.
That means that we need 85,000 homes over and above those coming onto the market this year – to adequately house our population.
With our population growth now the highest since the 1960s – the lack of housing supply will remain a problem for some time yet.
Industry has told me that to keep up with demand, Australia should be building around 180,000 homes a year – yet even in a good year, we would typically build only 150,000 new homes.
And this year – following the global recession – we will build even fewer.
As Reserve Bank Governor Glenn Stevens noted last week, until we close the gap between what industry can supply, and the demands of a growing population – the question of whether enough is being done to make housing supply more responsive to demand will remain on the agenda.
Persistent difficulties loom in the areas of land supply, zoning and approval.
This is why I recently spoke to State and Territory Treasurers – because the key levers in all of these areas rest with State and Territory Governments.
Some of the reforms that I discussed with the Treasurers were:
- How to encourage significant institutional investment in residential housing.
- How to generate a more predictable and competitive supply of new lots – greenfield and infill – for more housing;
- More efficient planning and development approval processes;
- Incentives for better use of existing housing stock;
- Greater State and Territory Government investment in affordable housing;
- How to support the growth of the community housing sector; and
- More effective use of government owned surplus land for housing.
I can confidently say that the Australian Government is playing its part. We have made the most significant investment ever by any Australian Government in the housing market – and it has been targeted to the affordable end.
Our housing programs – notably the social housing component of the Nation Building Economic Stimulus Plan and the National Rental Affordability Scheme – will add 80,000 homes to the stock of affordable housing by 2012.
As well as new programs that directly increase the supply of affordable homes – we can also provide incentives to encourage reforms to speed up the development process.
This is where the Housing Affordability Fund can have a serious impact.
In the first round of this program – most of the projects focused on small-scale infrastructure provision.
It is my hope that the second round of the Housing Affordability Fund will provide the incentive that governments and developers need to implement reforms that expedite the residential development process, helping to increase housing supply more quickly.
But as everyone in this room knows – adequate financial resources will of course also be needed.
With interest rates still near historic lows, the issue is not the cost of borrowing, rather the availability and terms of credit for developers.
Governor Stevens’ view is that perceptions by lenders of the riskiness of development in some cases are probably overdone just at the moment, given the strength of the underlying fundamentals on the demand side for accommodation.
I am sure there are different points of view on this in the room on precisely this point.
But if we look at the Australian housing market – it is true that demand has remained strong.
By and large prices have held firm throughout the global recession – unlike the United States and elsewhere where prices plummeted and the bottom fell out of the market.
Yet clearly access to finance remains a great concern to the residential construction sector.
Nowhere is the problem more obvious for multi-unit developments.
While housing starts are down 15 per cent since June 2008, multi-unit development starts are down by almost 40 per cent.
Everywhere I go people raise access to finance it with me as the greatest barrier to building more houses.
Everyone has a different theory about why we are in this situation – ranging from the role of APRA, assessment of risk by financial institutions to the structure of project finance itself.
Something far less tangible – confidence – also plays a role.
John Maynard Keynes made the point in the 1930s that the markets are moved by ‘animal spirits’, and not by reason – some might say the same applies today as we recover from the worst economic circumstances since that time.
When coupled with the issues that I spoke about earlier that governments need to work together to help resolve – the difficulty of accessing finance could have dangerous economic and social consequences.
My greatest concern is that will have an impact on housing supply.
So I am keen to hear from industry and finance what can be done to get us back to place where we can build enough houses to meet demand.
Clearly governments have a responsibility to work together to address some of the blockages that exist in the housing market.
But what is equally clear is that we are also dealing with a market problem – which will require a market solution.
You too have a responsibility to work together – as lenders, developers and builders – to help meet demand as the economy recovers.
With Australia’s population projected to grow to 35 million by 2050 – the lack of housing supply is not going to go away.