House Cost Rising

I have often commented that every time politicians make changes that impact the cost of housing, they make it worse, never better. 

And it’s happening again.

Changes to the National Construction Code came into effect in Victoria and Queensland on the first of May. 

And this is expected to add up to $40,000 to the cost of building a new home - through, among other things, the Code’s new energy efficiency standards.

HIA Chief Economist Tim Reardon said this caused a spike in new home sales before the changes came into effect – and there will a slump in coming months – as home buyers rushed to sign a contract for the construction of their new home before the end of April.

Reardon says New South Wales experienced the same phenomenon in September last year when the state introduced its latest energy efficiency standards, adding significantly to the cost of a new home. 

Reardon says: “Additional regulatory costs, such as the Code changes, are one of the causes of the nation’s acute shortage of housing. The changes are intended to achieve energy efficiency and accessibility outcomes, but they also force people out of homeownership and the rental market.

“Ongoing changes to building codes will continue inflating the costs of construction with the next phase of building regulations now open for public consultation.

“If ever there was a good time to stop inflating the cost of home building, this must be it.

“Lowering the cost of delivering new homes to market is essential to achieving the Federal Government’s target of 1.2 million new homes over the next five years, and improving housing affordability across the country.”

Developers have warned that additional infrastructure charges will work against government plans to unlock more newly built homes and will make property more unaffordable for buyers.

AV Jennings chief executive Phil Kearns said about $200,000 of the cost of a new home is tied up in fees and charges across all three levels of government.

Kearns said: “It’s substantial - and now the National Construction Code will add around another $30,000 to $40,000 worth of cost for mum and dad to put up with. We have this government working against itself in trying to create more affordable housing.”

A report by Savills for the Property Council of Australia found planned increases in the next 24 months to two recent infrastructure charges in Sydney — the new Sydney Water Development Servicing Plan and Housing and Productivity Contribution charges — could jeopardise the delivery of almost 190,000 homes in the city’s west.

Modelling in the report found a typical 250-unit apartment development, and a 115-lot greenfield development would no longer be financially feasible - and will be significantly less feasible in 2026 under planned increases.

In NSW, there are currently 15 separate levies and taxes on new housing. The report found that in Western Parkland City – which covers from Wollondilly and Campbelltown to Blue Mountains and the Hawkesbury — 33 per cent of new home costs will be government fees by 2026. 

In the Central River City region, spanning the Hills Shire, Blacktown and Bankstown, the figure was 26 per cent.

Kearns said there is also the continued challenge to secure skilled labour on-site, which continues to exacerbate delivery costs.

He said the labour skill shortages, the tax situation, and the difficulty in getting approvals through, are preventing homes from being built.

He said: “Blocks keep getting put in our way.”

Meanwhile, Reserve Bank chief economist Sarah Hunter has warned there is no “quick fix” for Australia’s housing market woes, as developers defer projects due to high costs - sending dwelling approvals per capita to decade lows.

The severe undersupply of homes means house prices and rents will continue to rise as the market fails to keep pace with strong demand for space fuelled by high migration and more people working from home.

Dr Hunter says: “Demand pressure, and so upward pressure on rents and prices, will remain until new supply comes online.”

She says that, usually, rising prices and rents trigger a surge in new housing supply as investors and developers see opportunity to profit from new builds.

But Dr Hunter says a “perfect storm” of constraints has prevented the construction industry from responding to the current housing shortage. In the current circumstances, many projects are simply not viable.

What it all means is that the shortage will continue for years to come – and the cost of buying or renting homes will continue to rise.