Debt financing is the single biggest barrier to building more homes
Back to Blog 24 November 2023 3 minute read
Australia has faced a worsening housing crisis in the wake of the Covid pandemic, with affordability on the decline as supply growth fails to maintain pace with resurgent demand.
Small-scale developers have a key role to play in helping expand housing supply, particularly when it comes to in-fill developments in established suburbs. They continue to face major challenges, however, when it comes to financing their projects.
Australia’s housing crisis continues to worsen
Authoritative observers from industry and government point out that the state of Australia’s housing supply has continued to worsen, despite mounting outcry over housing affordability for ordinary Australians.
The resurgence of inbound migration following the lifting of Covid-related travel restrictions has created a sharp rise in housing demand, further exacerbating an unaddressed shortfall in housing supply.
Analysis from MacroBusiness indicates that over the 2022-23 financial year, Australia constructed 174,000 dwellings, compared to a record 626,000 increase in the country’s population. This has created a huge imbalance between new supply and incoming demand.
The federal government has already initiated action to help address the issue, with the national cabinet announcing plans to drive sizeable growth in Australia’s home supply back in August.
The plan calls for the construction of 1.2 million new ‘well-located’ homes over the five-year period starting from 1 July 2024, from an additional 200,000 new homes compared to the National Housing Accord target set last year.
The housing market still has a long way to go when it comes to fulfilling these targets. Figures from the Australian Bureau of Statistics (ABS) indicate dwelling approvals are still on the decline, falling 13 per cent in the September quarter compared to the same period last year.
Conditions remain acute on the financial front as well, with lending activity stymied by the Reserve Bank of Australia’s ongoing rate hikes.
Housing Industry Association (HIA) economist Tom Devitt points out that property-related loans currently languish at two-decade lows. The September quarter saw loans for the construction or purchase of new homes plunge a stunning 27.7 per cent compared to the same period last year.
“Lending activity has been weighed down by the fastest increase in interest rates in a generation. This is drying up the pipeline of new home building work across the country,” Devitt said.
“This low volume of lending and approvals will produce a decade-low volume of new housing starts in 2024.”
Debt financing still the biggest pain point for small-scale developers
While the Australian government’s housing ambitions will require a greater contribution from smaller developers, this cohort faces major challenges when it comes to the financing of their projects.
CrowdProperty Australia conducted a groundbreaking survey of Australia’s small-scale developer community to acquire a deeper understanding of the pain points they face in the current market environment.
The survey garnered 267 completed responses from 188 active small-scale developers around Australia. Questions covered a broad range of topics, including the background and experience of respondents, as well as their preferred project types and key pain points as developers.
The survey found that debt financing remains the single biggest barrier to building more homes, with 56.14 per cent of small-scale developers considering it their number one challenge.