New Government Moves to Boost Housing Supply: What It Means for Investors
The Federal and Victorian governments are rolling out new initiatives aimed at easing Australia’s housing crisis by boosting supply. While these policies are designed to address affordability, developers and property investors face challenges in execution. Rising construction costs, squeezed profit margins, and changing market dynamics mean that careful planning will be essential for anyone looking to benefit from these shifts. Let’s break down the key developments and their potential impact on the property market.
Key Announcements
Federal Government:
The Federal Government is funding housing-related infrastructure like roads, water, and sewage connections, which aims to reduce the burden on developers. Historically, state governments shared the cost of infrastructure with land developers, but this model shifted to the private sector over time. By lowering infrastructure costs, these subsidies should make some projects more viable and encourage the launch of shovel-ready developments.
Victoria:
Victoria’s approach is focused on increasing urban density with high-rise zones near key metro hubs. Local planning laws will be overridden to allow up to 20-storey apartment developments near certain train stations. This is paired with a 12-month stamp duty concession for off-the-plan townhouses and units, regardless of buyer type or price, designed to drive short-term demand.
Challenges for Developers and Investors
Despite these incentives, developers still face several barriers:
Rising Costs: The cost of land, construction, and financing has climbed in recent years, making it harder for builders to turn a profit.
Profit Margin Squeeze: Experts suggest that either home prices need to rise, or construction costs must drop to restore profitability for developers.
Feasibility Concerns: Even with more high-density developments, the market might not meet buyer needs. For example, detached homes remain the preference for families, while inner-city high-rises are often less attractive for long-term homeownership.
Trends to Watch in the Property Market
High-Rise Living vs. Family Homes:
The Victorian government’s push for more high-rise units is a mixed bag. While this approach boosts supply, history shows that investor-driven apartment developments haven’t always delivered strong returns. For instance, unit values in Melbourne remain 8.4% below their 2017 peak, highlighting the volatility in this segment. Additionally, 2021 census data shows that only 1.7% of family households live in high-rise buildings, with most preferring detached homes.Affordability Push for Younger Buyers:
The pandemic widened the price gap between houses and units, with CoreLogic reporting a $313,500 differencein median values. Younger buyers, priced out of the housing market, may increasingly turn to units, especially with the stamp duty concession providing a financial incentive.Downsizing Opportunities:
For retirees, units in affluent, well-connected areas present attractive downsizing options. This could free up larger family homes and improve supply in established suburbs.
Opportunities for Investors
Capitalizing on Stamp Duty Concessions: Short-term incentives like the 12-month stamp duty concession may drive increased off-the-plan purchases, creating a window of opportunity for investors to tap into the market.
Outer Suburbs and Infrastructure Growth: Suburbs with new infrastructure investments will likely attract strong demand. Investors should keep an eye on metro hubs marked for development, as they could offer long-term growth potential.
Balanced Portfolio Approach: With detached homes retaining higher demand, investors should diversify between houses and units in areas where market fundamentals support both.
Looking Ahead: Aligning Policy and Market Needs
While these initiatives aim to ease housing shortages, governments must strike the right balance between increasing supply and ensuring long-term market stability. Past experiences with overbuilding and poor construction quality highlight the risks of focusing solely on quantity. Investors should remain mindful of how new developments impact property values and rental yields.
Housing is likely to remain a central issue in the upcoming elections, so more policy changes may follow. Whether it’s infrastructure funding, construction code adjustments, or further buyer incentives, both developers and investors need to stay informed to navigate this evolving landscape.
At Bluechip Property, we specialize in helping investors identify opportunities in complex market conditions. If you’re looking to leverage these policy changes and make strategic investments, our team is ready to guide you every step of the way.
