The Albanian government has made a grand promise to complete the construction of 1.2 million new homes over the next five years, but are they really dreaming?
Sydney’s unprecedented housing crisis has prompted the NSW government to seek radical reforms just three days before the state budget is due to be passed. Among its plans, the state government is considering acting as a “guarantor” for homebuyers. It is hoped the idea will accelerate the delivery of the 75,000 new homes needed across the state each year to meet national targets to tackle the housing crisis.
On paper, the strategy is that achieving a record number of housing completions over this long period would address the housing and rental crisis over time.
But the question is, is the goal realistic?
When broken down into an annual required number, 240,000 homes would need to be completed each year from 2024 to 2029.
Historically, the highest level of housing starts over a 12-month period occurred in the third quarter of 2017, when an all-time high of 223,600 was recorded.
Hawaii Building Authority chief economist Tim Redon estimates that 176,000 new homes will be completed in the first year of the Albany government’s goal, and actual completions will remain slightly below the 240,000-unit target over the five-year goal.
The core of the government’s housing platform is arguably a pledge to complete 1.2 million new homes over the next five years.
Historical precedent
Since the Australian Bureau of Statistics began recording housing completions in the mid-1980s, there have been six major rebounds in housing completions.
On average, home completions rose 34.8% over the two- to four-and-a-half-year period of activity.
The ideal rate of completion for historic housing depends largely on the viewer’s perspective.
Between the first quarter of 1988 and the first quarter of 1990, housing completion rates rose by a very strong 42.1% in just two years.
However, the largest increase in housing completions in a single cycle occurred between the third quarter of 2012 and the first quarter of 2017, when they rose 55.2 percent over 4.5 years.
Housing is expected to become one of the most important political battlegrounds between the Albanian government and the coalition. Photo: NewsWire/Nikki Short
Currently, the approximate average level of the expected bottom for housing starts is about 160,000 units, and that is expected to happen in the fourth quarter of this year.
If we apply the ideal short-term scenario on this basis, which raises the number of completed homes to a much higher level and more quickly than other cycles, the number of completed homes by the end of 2026 will reach 227,300 homes.
On the other hand, if we assume the strongest recovery in terms of overall volume, the number of completed homes will peak in the second quarter of 2029 at 248,300 homes.
By performing both scenarios, the required goal of completing 240,000 or more homes over a consecutive 12-month period for a single aggregate quarter was achieved.
Loading embed…
Prospects
Achieving the goal of building homes at a record-high of 17,000 homes a year for five years was a big ask, even on the surface.
But when you put this in the context of a construction sector that is suffering from the end of the construction cycle, high costs, and the highest interest rates in more than a decade, it becomes a mountain to climb.
Historically, housing completions have lagged behind minimum housing approvals by about six to nine months under normal circumstances, with the only clear exception being the pandemic-affected period.
Loading embed…
So far, there is little evidence that housing completions have bottomed out, with approvals still pointing to at least several more quarters of weakness in the numbers.
The federal Treasury’s forecasts in the budget were not particularly optimistic, with housing investment not expected to grow at all during the 2024-25 fiscal year.
Part of the problem going forward is that while completing 240,000 homes a year every year over the next five years may seem like an ambitious goal, given the country’s changing demographics along with population growth, according to some experts, it’s not far from the absolute minimum needed to move forward.
According to an analysis by the Health Insurance Agency’s chief economist Tim Reddon, based on a population growth of 400,000 people, which is close to the rate expected in 2024-25, the country would need to build at least 230,000 homes to meet base demand.
This assumes that the economy continues to grow at a slow rate and that growth in household wealth will be low.
Ultimately, the Albanian government’s plan to build 240,000 homes a year may be much riskier than its ambitious nature suggests.
With an ageing population and Australians having fewer children, changing household demographics will continue to put pressure on housing demand.
Tarik Brooker is a freelance journalist and social commentator | @AvidCommentator
