The big challenge of fixing Australia’s housing crisis

He paid less than half the $6 million-odd figure Porter Davis is thought to have had forked out for Melbourne-based Englehart in November 2021 and is now throwing himself full-time into running the specialist builder of about 30-35 luxury homes a year.

But in Australia’s race to build more homes – a target Prime Minister Anthony Albanese stretched to 1.2 million homes this week – the output of Englehart, whose customers typically spend $2 million-$5 million building a home on a site costing them $2 million to begin with, won’t touch the sides.

McLennan, who has given up on commercial work to follow his dream to get into residential building – he’s winding down his other business, Neocon – is acutely aware of the challenge Australia faces to build homes on a greater scale than ever before.

The new target, an increase on the 1 million homes the government had already planned to build under its National Housing Accord plan, marks a big step up for the industry.

Building 1.2 million homes from July 2024 requires a run rate of 240,000 housing starts a year for five years, a pace the country has never achieved. The closest it came was 234,910 in the 12 months to June 2016. The latest official figures show the total over the year to March 2023 was 179,266. Unless things change, and fast, Australia will fall 210,000 homes short of the 1.2 million total, the Housing Industry Association says.

The industry’s capacity remains challenged after a slew of builders went broke amid soaring costs. Meanwhile, interest rates have priced many out of the market while an uncertain economic outlook has scared off others.

After a national cabinet meeting on Wednesday, Albanese promised that states and territories would take a more aggressive approach to zoning and development approvals to help free up the land needed to deliver on his target. But as Australia’s sorry history of housing reform shows, zoning changes made by state governments are hostage to the political ability – or willingness – of local councils to implement them.

And even if reforms are agreed, the inevitable delivery delay of several years is an ongoing risk to politicians across the spectrum. Disgruntled younger voters are being courted in particular by the Greens, which has identified the housing crisis and soaring rents as its major political opportunity.

On the other hand, the political urgency could strengthen a push for reforms such as tax and pension eligibility changes to encourage the much quicker solution of empty-nesters opening their houses to free up vacant rooms, of which there are an estimated 600,000 in Sydney alone.

The medium-density challenge

Cracking the medium-density nut in a country that has grown up with high-rise CBDs and flat wide suburbs is crucial, McLennan says.

“That has been the problem – height limits in a lot of the suburbs,” he says. “They need to relax some of those in retail areas around train stations and the like. They’re still having issues with local councils on trying to get heights increased. That’s what you need to get the density up.”

To sustainably deliver the volume of new housing the country needs, medium-density developments are required in established areas that have the existing infrastructure to support growth and are located close to employment hubs or are well connected to them.

More medium-density housing is crucial, agrees Ashleigh Ryan, a director of planning consultancy Urbis.

“The challenge to deliver 1.2 million new homes over the next five years will require both urban infill solutions, plus the delivery of new communities including those already identified in precinct structure plans that are awaiting the rollout of enabling infrastructure,” Ryan says.

“To meet a five-year target, the government should also look at removing the barriers for infill density in low-rise (e.g. two-to-three storey) settings where smaller developers can provide more diverse housing opportunities in existing neighbourhoods.”

But medium density is a difficult area. It may, in fact, be too difficult, as NSW showed in 2018 when it backtracked on its own fast-track medium-density housing code.

McLennan’s state of Victoria has a 70:30 aspiration for new housing development, with 70 per cent of new homes to be delivered in established areas and just 30 per cent in greenfield sites. But it is falling short of those goals, deputy premier Jacinta Allan conceded earlier this year. That is part of the reason that planned housing reforms the state government will hand down in coming months are likely to curb residents’ scope to object against medium-density plans.

But some governments appear to be going the other way, under pressure from large builders concerned about costs or from resident groups worried about denser development.

Last week, Western Australia shelved plans to boost medium-density developments in the face of developer complaints that they would raise costs.

WA developers were preparing a swath of projects under the medium-density code that had been in preparation since 2019 and was due to go live next month – until it was shelved this month.

“A large number of projects within the R30 and R40 areas [zoned for townhouses and now excluded from the code] were going to be produced as a result of implementation of the medium-density codes,” says Daniel Paton, a Perth-based consultant working with developers across the state. “Those projects are on hold.”

The question of labour supply

Meanwhile, the old hurdles haven’t gone away.

“What I would say, which will be a challenge for supply and which we can’t lose sight of, is that there is a finite group of construction workers in Australia right now that have been dragged in two different directions,” Mirvac chief executive Campbell Hanan told AFR Weekend.

That’s a reference to the idea that the construction industry’s long-standing labour constraints will be tested further by the housing construction targets at a time when the public and social infrastructure spend is ramping up.

“Both of those things can’t happen together. And so decisions around the allocation of a finite resource are really important,” says Hanan.

The issues of planning haven’t gone away, but the federal government hopes to make some progress in this area. Under this week’s announcement, the Commonwealth will pay a $3 billion New Home Bonus to states and territories which beat their share of the new home target.

There will also be a Housing Support Program of $500 million targeted to local and state/territory governments to help with the “last mile” on projects to build housing and enabling infrastructure.

A National Planning Reform Blueprint will offer a guide to streamline and boost planning and zoning and remove barriers to development approvals that will accelerate housing.

“If we are to get the supply we need, kinks in the planning process need to be ironed out to speed up the construction of social and affordable homes,” says Community Housing Industry Association CEO Wendy Hayhurst. “Recognising that councils need resourcing to enable them to respond is also a positive element of this package.”

But many remain doubtful about whether the country can achieve its housing goals. Back in Melbourne, McLennan points to 2002, when the then-Victorian government released its Melbourne 2030 strategy for sustainable growth.