According to the 2023 Intergenerational Report, the Australian economy is projected to grow at a slower rate during the next 40-years, at an average of 2.2 per cent a year, compared around 3.3 per cent a year during the past 30-years.

The 2023 State of the Nation’s Housing Report indicates more than 1.8 million new households are expected to form across Australia from 2023 to 2033, taking total households to 12.6 million, up from 10.7 million in 2022.

However, net new construction activity is expected to fall to 127,500 dwellings in 2024-25, coinciding with recent sustained increases in interest rates relative to previous Reserve Bank of Australia (RBA) guidance.

Macroplan’s short-term outlook for the Australian economy is for relatively subdued GDP growth i.e. sub 2.0 per cent per annum, with inflation remaining elevated until late 2025.  

Australian 10-year bond yields are likely to remain in the range of 4.25-4.5 per cent. This means the official cash rate will remain at 4.35 per cent with upside bias until at least late-2025. Retail mortgage lending rates will likely remain in the range of 6.0-6.5 per cent. 

We anticipate a recovery in housing construction activity after 2025-26 reflecting changing macroeconomic conditions and stronger underlying demand.

An interest rate cutting cycle from 2026 is likely to be shallow i.e. 1.0-1.5 per cent and last for at least 18-24-months, before increasing due to growing fiscal pressures e.g. NDIS, Defence, health, education, and continuing sticky services inflation.

This highlights three challenges for the Australian housing market:

1. Dwelling supply – home construction activity will remain low during the next 18-months, reflecting low dwelling approvals, meaning the residential construction sector will be unable to respond to the next demand cycle.

2. Prices – when interest rates moderate, there is likely to be a significant increase in dwelling demand and residential prices, further contributing to housing unaffordability, especially in our capital cities. 

3. Rents – the current rental crisis will get worse with increasing risks of homelessness for many low to very-low income households.

The time to act is now.

On the supply side, it is critical to implement policies that increase residential construction activity now. This includes:

• introducing a range of new definitions concerning affordability as it pertains to different market segments or product types e.g. affordable housing estates, affordable caravan parks, affordable retirement villages or affordable land lease communities.
• extending the Victorian Government’s Future Homes program to provide architect designs for single storey infill developments, with no limits on the number of single storey dwellings.
• allowing greater height, scale and density for multi-storey residential buildings with walkable access to public transport infrastructure and amenities. 
• facilitating upzoning and corrections to the Urban Growth Boundary (UGB) with a mandate for up to 20 per cent affordable housing in these areas.

On the demand side it is important that first home buyers and low-income households can gain access to more affordable bank finance, including:

• deposits for first home buyers be set at a more modest rate of say 5 per cent, with banks paying Lenders Mortgage Insurance.
• discounted interest rates e.g. 1 per cent over the cash rate for the first 5 years.
• tax deductions for first home mortgages.

These measures should be supplemented by increased investment in housing supply by the Australian superannuation industry, with home buyers being able to utilize superannuation for deposits on dwellings.

Housing may no longer be the ‘Australian dream’, but it is a human right. This means monetary and fiscal policy settings, planning and legislative frameworks and investment mandates for banking, finance and superannuation must reflect this.