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Major Implications Of Housing Supply Crisis In Australia

Australia is facing a housing crisis, with many construction companies struggling and rental prices rising. This article explains the main issues, like high interest rates and population growth, and offers simple advice on how to handle these tough times. Find out what to expect in the future and how to prepare for it.

Written by
Ravi Sharma
Published on
June 14, 2024
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Table of contents

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With little to no sign of interest rates changing anytime soon, what does this actually mean for the construction companies out there?

Unfortunately, over the last 12 to 18 months, we've witnessed a significant number of them go bust.

And if you are someone who is currently involved in construction or considering it, these times could be DAUNTING.

I'll delve into how this impacts the rental crisis in this article, so keep reading if you're curious about my thoughts.

Economic Challenges and Rental Crisis:

Now, take a look at this graph below. The number of dwellings being completed in Australia remains well below pre-pandemic levels.  This contributes to the country's current housing supply crisis and total number of insolvencies.

Company insolvencies graph

You can also see “construction” on the graph that is basically covering off from 2014 to 2023. 

Construction graph 2014 to 2023

The key takeaway from the left side is that:

  • These trends began to emerge predominantly around: 2020 and 2021
  • They coincided with the significant rise in interest rates.

Construction and total number of companies graph

The reason why it kicked off then was:

  1. We had our borders shut. People couldn't build, and once they could build, we simply couldn't get enough supply to build those homes.
  2. We had labour shortages.
  3. Supply constraints.
  4. Interest rates kept going up.

That is why we've seen this number actually go parabolic. You can see that construction makes up a majority of these insolvencies.

Industry graph

This is very concerning because: If you don't have construction companies out there, building, then who's going to build all these properties that we need? 

We're in a housing crisis and a rental crisis. If you don't know, we are also in a cost of living crisis.

Looking at those numbers I showed you above, it can be quite doom and gloom. Considering the:

  • Per capita recession we're experiencing; and 
  • Record number of population growth alongside incoming migrants.

It is clear that we need to proactively invest in assets. Why?

Because who knows how long this situation will persist?

Challenges, Population Growth and Preparation for Market Changes

Now, when you look at government policy and the planning changes, including the rezoning, it paints a grim picture, at least for the next 2 to 3 years.

So if you're someone that's struggling, honestly, my heart goes out to you. But all I can say is: don't fall for the fake media that says, “It's going to be okay very soon.”

It is almost like they are leading you on because it is probably going to get worse, and you better strap yourself in.

What you need to do is: Start making some hard decisions regarding your:

  • Lifestyle choices
  • Where you live

That is, in fact, the reality.

My Thoughts and Experience

A month ago, I took an Uber ride. During the trip, the driver expressed his struggles, saying:

  • How he could not afford the rent
  • That he had four kids
  • That he just could not sustain his lifestyle at the point he was at
  • That he was working six days a week
  • That he was considering working seven days just to make ends meet

We tried to break it all down, and I tried to help as much as I could. Eventually, I asked him the dreaded question: “Why don't you move out of Sydney?”

When he heard the question, he was almost emotional about it. However, that's the reality of our current situation.

Sydney ranks as one of the most expensive cities in the world to live in. But I also acknowledge that many parts of Australia are severely affected by this crisis.

I can also say that this is a big concern and is something that I honestly don't think will change in the next 2 to 3 years.

High interest rates obviously play a major role. People took on debt with the promise that interest rates would not rise for the next couple of years.

Now, many find themselves trapped in mortgage prison. If you are not in mortgage prison, you are likely out there, searching for the next rental property.

In every single piece of content that I created, every single story I posted for a good period of about 3 to 6 months in 2020 and 2021, I consistently urged people to:

  • Go and get a side hustle
  • Learn soft skills

By not having to commute to work and back, you have effectively saved 2 hours a day. This is the time you want to capitalise on.

Some people actually went out there and did that, which is awesome because you're probably in a really good position now. But for others, it was really not possible due to:

  • Health concerns; and 
  • Mental health problems

Some could not manage it with the load they had on their plate. This is a crucial moment for you to start leveling up your skills. Whether it is soft skills or securing a second job, if you really like being with a team, you are probably going to have to switch companies to get that higher pay.

And that is the time where you knuckle down because if things do get worse over the next 2 years, you will need to ask yourself: “How can I survive?”

If you've got a family that relies on you as well, asking the same question is also important. Now, I don't want this to be really doom and gloom. 

It is important that we don’t solely focus on:

  • The optimistic aspects of making financial freedom a goal; and 
  • How things can be amazing if you own assets.

The reality is: If you don't own assets, you're going to fall behind.

Why? Because property prices are set to rise in the years ahead. Owning assets puts you in a position to capitalise on the opportunity.

Population Growth and Market Trends:

Population growth can overshadow the impact of increased pressure from interest rates on the property market.

Quote about the increase rate pressure

With:

  • 7,657 overseas migration arrivals; and
  • 27,100 departures net overseas 

Net migration was: 5,488 people during the year ending 30th of September 2023.

Overseer migration arrivals status

As for the areas with fastest growing population:

Western Australia: 3.3% population growth rate.

Victoria: 2.9% population growth rate.

Queensland: 2.7% population growth rate.

3.3% growing population in Western Australia

Meanwhile:

Net overseas migration drove 83% of annual population growth.

Natural increase accounted for the remaining 17% of annual population growth.

Net overseas migration drove 83%

In addition, another 660,000 people equates to another 264,000 more dwellings being needed.

Currently, we are only completing close to 90,000 dwellings, which is significantly short of the required number.

Damian Collins’s feedback about the new population data

Population growth remains at very high levels in January 2024.

Unfortunately, any hope of relief in the housing and rental market is not even on the horizon.

January 2024’s population growth is still high

Prices and rents across most capital cities are heading up.

Perth property is projected to deliver property price growth in 2024 between: 10 and 20%.

It is also the fastest-growing population centre in Australia, contributing to price pressure.

Status about Perth located properties

Re-evaluating investment metrics

In 2021, when we began showing clients the areas we needed to focus on, many people dismissed it and were like:

It is just another mining town.”

“I don't know why I'm buying in Perth.”

There were also other buyer’s agents coming out and saying: “I'm not touching the area, it's not sustainable.”

The reality is: If you use the same metric that you used 10 years ago, you are going to get vastly different results.

But it is like going out there and saying: “I'm going to use the internet in the form that it was 10 years ago versus today.”

We have such amazing technology now, like Artificial Intelligence (AI), that drives so much more speed, so you would already be disadvantaged.

This is why it's important that: When you do get guidance and you get the right team around you—have people in that team who are:

  • Active in today's market; and
  • Achieving the same sort of things you want to achieve.

If you simply had someone that did it 10 or 15 years ago, they're like: “Oh cool, this is what worked for me, don't worry about what the new kids are saying.”

But if the new kids are learning new tricks and they are understanding how things and trends change…

YOU NEED to ADAPT.

You’ve probably heard the quote: “adapt or die.”

That is the same thing when it comes to running a business as well as going out there and investing. If you want to do it, well, you need to keep adapting!

Two of those areas that we spoke about extensively were: Perth and the Regionals in Western Australia.

Now, obviously everything looks amazing. But trust me:

24 months ago, people were NOT interested in buying there.

Even before that: No one wanted to buy in South Australia, where we were also capitalising on the market.

Now: We're focusing on a couple of other markets in addition to Perth, where we're finding some value plays.

BUT the risk is considerably higher. That is why it's important that: If you want to go out there and build a portfolio, you need to diversify.

We have already identified the next two locations where we will see the next phase of growth and the one after that. So, if we're considering:

  • Portfolio building; and 
  • Examining how to sustain all that growth at an average growth rate of greater than 7 to 10%,

We already have a clear picture of what that entails for the next 6 to 7 years.

And that window holds significance.

Why? Because if you really wanted to, you could pretty much retire with two properties.

Going back:

The rental crisis is also not going away anytime soon. Over the last decade, the median weekly rent collectively paid by renters throughout Australia has doubled from: $44 billion to $88 billion per year.

Rental paid in the last decade calculated

Kevin Young, president of Property Club, described the dire rental vacancy situation as a: Government-engineered crisis.

A decade ago, the median weekly rent for Australian homes was: $300.

Now it has blown out to: Over $600 per week.

With nearly 3 million private rental properties throughout Australia, Australian renters are paying nearly: $250 million in rent every day.

But don’t worry! In addition, I'm rentvesting. I'm definitely feeling it too because our rents have also increased. The fact is: If I was just renting, I'd be falling behind.

But because I rentvest, I'm renting somewhere I want to live. 

Yes, my rents have gone up. I also own all these other investment properties, and all of the rents have increased there as well. So, the net cash flow actually puts me in a better position.

Why? Because those rents are offsetting a significant portion of what I'm paying.

Now, this graph here shows exactly what's about to happen and is currently playing out:

19-35 year old population share change from 2011 to 2021

As you can see above, a lot of people are moving out from the inner suburbs to the western suburbs or even further out of these metro areas.

Why? Simply because: It is not sustainable with the rental prices where they're at, and they are increasing fast.

If you're out there trying to buy a property, it is almost impossible due to the intense competition. Both local residents and incoming migrants contribute to the heightened competition. This situation severely disadvantages buyers in the property market.

This is why I go back to my thesis, which is: “I can get into affordable markets.”

Now, yes, that could be in metro markets. But more likely, it'll be in regional hubs.

These are mini capital cities—the next capital cities and as the population grows, we need to see:

  • Infrastructure spending
  • Job creation

That is exactly what I see as part of our research—to go: “That’s where we're going to go.”

Then what happens 2 to 5 years later is that with all this amount of growth, we will have:

  • Increased amounts of demand as people move internally as well as due to external factors; and
  • Rising prices and rental growth.

Now, what you can see here is the PropTrack Rental Affordability Index. It is actually the worst affordability on record.

Proptrack rental affordability index

This is absolutely wild. We are now even below levels that we saw in 2009 and 2010. At the rate of change, we are going to continue seeing this to become the worst problem by the time we get to 2025 and 2026.

Now, this next graph is absolutely wild.

 

Percentage increase in median advertised rents

The graph displays the percentage increase in median advertised rents from: March quarter 2020 to December quarter 2023.

Regional areas are represented in purple

While capital cities are in peach.

The data provides a comprehensive breakdown of rent increases.

For example:

  • Hobart experienced an 11% increase
  • Northern Territory and Canberra saw a 15% increase

But then, you’ve got some significant amount of growth in terms of rents when it comes to:

  • Perth
  • Western Australia
  • South Australia
  • Brisbane

Despite high prices in Sydney, there was still a substantial 40% increase. Regional New South Wales experienced a significant 37% increase in rents.

That is wild because: A rapid rent increase occurred within just three years, unlike the usual decade-long trends.

This is wild because it's about to get worse! 

This is my personal opinion and it's honestly on the basis that: There is simply no supply. 

So as much as I'm going out there and saying:  “This is the truth and I don't like it.”

I think if you're someone that gets hurt by hearing this news, you're like:  “I don't want to know about this.”

The thing is: You are kicking the can down the road and by the time you get down the road that can is massive.

And it's so hard to move!

Unfortunately, it's absolutely crippling at that point.

Let’s wrap up!

So I hope you guys have taken something away from this article.

To recap:

If you have a choice,

If you have an extra hour or two,

Go out there and learn some soft skills, and increase that income.

Try to acquire assets as soon as possible, whether that's property or anything else. You need to own assets because if we see interest rates come down even remotely, you will see the confidence shift.

Remember: most people buy with emotions.

If they see one cut, for them, that will feel like 10 cuts!

Because now we've come to the top of the mountain and we're heading one way. This means probably cut after cut after cut!

I’m not saying that’s what's going to happen, it’s just how most people will think, and then they will have fear of missing out.

….that emotion is going to be wild.

And it could lead to the biggest bubble we've ever seen in Australian property history.

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