The global COVID-19 pandemic has caused the biggest shock to population growth since early last century, triggering a forecast plunge in new demand for Australian housing over coming years.
That’s the key finding of the first report by the federal government’s newly-formed National Housing Finance and Investment Corporation research team, who have provided a picture of the projected housing supply and demand balance to 2025.
By then, almost one million fewer people than previously expected are predicted to be living in Australia, according to the report released on Tuesday.
But at the same time, low interest rates and government stimulus have caused a recovery in construction activity, and new supply is expected to exceed new demand by around 127,000 dwellings next year.
“Cumulative new supply is expected to be around 93,000 higher than new demand by 2025, although sensitivity analysis demonstrates this could halve with slightly more optimistic population growth assumptions,” the researchers say.
“Should international borders open sooner than expected, with migration resuming and more Australians returning home, coupled with potentially constrained housing supply, any cumulative excess supply over a medium-to-longer term horizon is anticipated to be negligible.”
Fewer households forming to soak up new supply over the near term is good news for renters, particularly in more densely populated eastern seaboard cities, as it should push prices down.
“There is likely to be downward pressure on rents in Sydney and Melbourne where vacancy rates are higher, which could improve overall rental affordability,” the researchers say.
They say that in the long term, however, the trends of declining affordability - particularly for low-income renters and prospective first home buyers able to transition to home ownership - will likely persist.
That’s why it is crucial for supply to respond to demand when it recovers and exceeds available dwellings, likely beyond 2023, the researchers say.
“The outlook for housing demand, supply and affordability is ultimately dependent on the reopening of international borders, the path of future population growth and the economic recovery, all of which are subject to an unusual degree of uncertainty,” the report concludes.
“In some respects, the projected excess supply over the next two years can be seen as partial catch-up for longer more protracted periods of undersupply.”