Australia’s state of Victoria’s housing market is facing a challenging period, with the potential for more than $1 billion in lost social benefits, including higher wages for Melbourne-based workers. According to the Australian Bureau of Statistics (ABS), the number of new homes started in Victoria dropped to 51,462 in the year leading up to March 30, 2024, a decade low. The number of completed builds also hit its lowest point since 2016, with only 55,773 completions recorded.
These figures have raised alarms within the Property Council of Australia, which now warns that Victoria is “starting from behind the line” as it embarks on an ambitious plan to construct 800,000 homes over the next decade and more than two million by 2051.
New research from FTI Consulting, also released Wednesday, suggests that if Victoria meets its 2051 housing goals, including a significant shift in construction from Melbourne’s outskirts to established suburbs, the state could reap a $1.6 billion windfall. This figure accounts for reduced infrastructure construction and road congestion costs, increased business productivity, and potentially higher wages for workers.
FTI Consulting’s managing director, Lars Rognlien, emphasized that achieving the state’s construction targets would directly correlate with the estimated $1.6 billion in social benefits. “If you get half the target, you get $800 million,” Rognlien explained. However, if Victoria only meets half of its construction goals in established suburbs but fully achieves targets in fringe areas, the increased infrastructure costs could result in a $1.5 billion loss in social benefits for the state.
The FTI report does not include potential improvements in housing affordability. Despite this, Rognlien noted that it was “very unlikely” the state would meet its ambitious goals without significant changes, as the current costs of construction and financing deter potential buyers from proceeding. He suggested that a reduction in interest rates and an increase in the value of newly built properties might be necessary to stimulate the construction market.
The Property Council of Australia also highlighted the urgency of the situation. National figures from the ABS revealed a 9.1 percent drop in the number of homes completed, falling to 41,329 between the end of 2023 and March 2024. This decline underscores the need for a substantial increase in the pace of construction to meet national and state housing targets. If housing supply remains at current levels, the country will only manage to build around 830,000 homes over the next five years, leaving a shortfall of 370,000 homes. For Victoria, the target is even more daunting, with a goal of 80,000 homes per year—an ambition that exceeds the state’s historical performance.
Addressing the housing shortfall is critical not only for meeting population demands but also for exerting downward pressure on housing prices for both renters and buyers. The current state of Melbourne’s housing market—inner, middle, and outer suburban areas—must be energized to ensure that the supply meets the growing demand and stabilizes housing costs.
The data underscores the broader challenge facing Victoria and the nation. The housing market’s performance in the coming years will be pivotal in shaping economic and social outcomes. Policymakers, developers, and the construction industry must collaborate to find innovative solutions that address the barriers to new housing developments and ensure that targets are met.
Without immediate and concerted efforts to ramp up construction, the economic and social benefits of increased housing supply may remain out of reach. This period of adjustment will require strategic planning and action to overcome the obstacles currently hindering the market. The stakes are high, and the need for a proactive approach is more pressing than ever.
The housing market’s current trajectory highlights the need for a comprehensive review of policies and practices that can support increased housing development. Efforts to reduce regulatory barriers, provide financial incentives, and streamline approval processes could play a significant role in accelerating construction rates. By fostering a more conducive environment for housing development, Victoria can move closer to achieving its ambitious targets and reaping the associated social and economic benefits.
As the situation develops, stakeholders across the board must remain engaged and responsive to the evolving dynamics of the housing market. Continuous monitoring, assessment, and adaptation will be key to navigating this challenging landscape and ensuring that Victoria’s housing goals are met.
Ultimately, the goal is to create a sustainable and thriving housing market that meets the needs of the population and supports broader economic growth. The path to achieving this will require innovation, collaboration, and a steadfast commitment to addressing the challenges head-on. The future of Victoria’s housing market depends on the actions taken today, and there is no time to lose in making the necessary changes to secure a prosperous future for all.
