Government charges and regulatory shifts have left a noticeable dent in Victoria’s housing market, casting shadows over what could have been a strong recovery in new home construction. Keith Ryan, HIA Regional Director, emphasised the negative impact of these policies, stating that the added financial pressures are dampening market confidence, delaying the much-needed resurgence in housing activity.
The Housing Industry Association (HIA) recently shared its Economic and Industry Outlook report, offering an updated forecast for home building and renovations across Australia. The report paints a challenging picture for Victoria, where the costs associated with new housing have soared due to a series of new levies and ongoing changes to the National Construction Code. These developments have introduced significant uncertainty into the market, further complicated by rising interest rates, and will likely postpone a recovery in Victorian home building until 2025.
The data tells a sobering story: in Melbourne, 37% of the cost of a house and land package is now tied to government-imposed charges. Recent additions to these costs include a windfall gains levy of up to 62.5%, a land levy surcharge for those with multiple properties, and the extra expenses that come with compliance to evolving building regulations. These factors have hit the Victorian housing market hard, setting it on a trajectory that lags behind other states. While many regions across Australia have begun to see an upturn, Victoria’s housing sector is expected to remain in a slump until at least the middle of the decade.
Detached housing, which has been the backbone of Victorian residential construction, is forecast to experience one of its weakest periods in recent memory. The HIA’s forecast suggests that 2024/25 will mark the lowest point in the current cycle, with only a slight improvement expected the following year. For a market that had been a national leader in housing starts, this represents a significant downturn. Meanwhile, the situation is even more dire for higher density housing. Multi-unit projects have seen a sharp decline in commencements, down over 40% since 2015, with no significant recovery expected until late 2025.
Mr Ryan pointed out that there is a path to revitalising the Victorian housing market, but it requires a shift in how the industry is regulated and taxed. He urged policymakers to reconsider the new charges and regulatory measures that have been imposed, particularly those that target investors who play a crucial role in funding new housing developments. According to Ryan, some of these charges may be counterproductive, as they could reduce tax revenue by stifling construction activity and economic growth.
A critical issue in Victoria is the shortage of affordable land, which has become more severe than in almost any other state or territory. To address this, there is a pressing need to accelerate the availability of land that is ready for construction. This would help reduce the overall cost of housing and make it more accessible for homebuyers. However, the challenge doesn’t stop at land availability. In a city like Melbourne, where space is limited and demand is high, there is also a need for a strategic focus on higher density housing developments in existing suburbs. These areas, which are close to employment hubs and transport links, are key to accommodating the growing population. The Victorian government has expressed its intent to encourage more of this type of development, but to do so effectively, it must also work to restore consumer confidence in the quality and viability of these projects.
Another significant challenge facing the housing sector is the need for adequate infrastructure to support higher density living. The success of such developments depends on the ability of local councils and residents to support them, which requires addressing objections and removing obstacles that often stall progress. Infrastructure investment is crucial, not only to ensure that new developments are well-served but also to reassure potential buyers and residents that these areas will remain livable and connected.
The workforce needed to build these homes is another area of concern. The Australian government has a role to play in ensuring that skilled labour is available to meet the demands of the construction industry. Streamlining visa processes for in-demand trades is one way to address the shortage of workers that has plagued large-scale projects. Without these essential workers, many apartment developments may struggle to even get off the ground, leading to further delays in meeting housing demand.
Despite the challenges, there is a glimmer of hope for Victoria’s housing market. While the HIA’s forecasts indicate that the next few years will be tough, there is potential for growth if the right policy changes are made. For detached houses, Victoria started construction on 8,310 homes in the first quarter of 2024, showing a modest increase of 3.9% from the previous quarter. However, the momentum appears to be slowing, with projections for the June quarter showing a slight decline. This downward trend is expected to continue into the next financial year, with a trough anticipated in 2024/25 before a gradual recovery begins in 2025/26.
For multi-unit developments, the picture is similarly mixed. The first quarter of 2024 saw a 13.6% increase in commencements, but this growth is not expected to sustain. The forecast for the June quarter indicates a 6.9% drop, which would still leave the annual total higher than the previous year’s historically low figures. Looking ahead, the market is expected to see only modest improvements in the near term, with more substantial growth not forecast until 2026/27.
The outlook for Victoria’s housing market remains uncertain, with significant hurdles to overcome before a robust recovery can take place. The state’s construction industry faces a complex mix of challenges, from tax policies that deter investment to regulatory burdens that increase costs and delay projects. However, there is potential for improvement if policymakers take action to remove these barriers and support the industry’s growth. The next few years will be crucial in determining whether Victoria can reclaim its position as a leader in Australian home building.
