Victoria’s housing market recovery is set to face delays despite robust demand, with new tax burdens and regulatory changes dampening market confidence. The Housing Industry Association (HIA) has highlighted these concerns in its latest Economic and Industry Outlook report, which forecasts a sluggish return to growth in the state’s new home building sector.
HIA’s Regional Director, Keith Ryan, points to a series of government-imposed costs that are exacerbating the uncertainty created by rising interest rates. “The cost of a house and land package in Melbourne already sees 37 per cent attributed to government-related expenses,” Ryan stated.
“Now, these issues are compounded by the rising costs linked to the ongoing changes in the National Construction Code. The combined effect of these pressures means Victoria’s recovery in home building is unlikely before 2025. The state is trailing behind most other regions, which have already begun to move past their expected downturns.
Ryan notes that the 2024/25 financial year will likely mark the lowest point for Victorian detached housing, with only a slight improvement expected the following year. This period will cap off three of the weakest years of the decade for housing commencements in the state.
The outlook is even grimmer for higher density housing projects, with multi-unit commencements down by over 40 per cent since 2015. The 2023/24 financial year will conclude two of the worst years for the sector since 2011/12, with a meaningful recovery not expected until the latter half of 2025.
There is, however, significant potential for growth if the Victorian government addresses the industry’s constraints. Ryan urges policymakers to reconsider the imposition of new taxes and regulations, particularly those that target investors, who are crucial for driving new housing developments. He argues that some of these taxes may inadvertently reduce tax revenue by stifling construction activity and hindering economic growth.
A critical issue in Victoria is the acute land shortage, which has made land less affordable compared to other regions. Ryan calls for a more rapid and efficient process to make land “shovel-ready” to meet the demand in the coming years.
In Melbourne, a major global city, there is also a pressing need for more higher density housing close to jobs and transport. The government has expressed its desire to promote such developments, but restoring consumer confidence in the quality of these projects is essential. Moreover, sufficient infrastructure must be in place to support higher density housing, and local objections to these projects need to be addressed.
The HIA report also stresses the importance of streamlining visas for in-demand trades, ensuring that large apartment projects can be completed on time and within budget. Without these changes, many projects may struggle to get off the ground.
As things stand, the kind of housing numbers needed to make a significant impact on affordability in Victoria are not reflected in current forecasts, according to Ryan. The state’s housing sector faces a challenging path ahead, with real progress unlikely until substantial policy shifts are made.
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