When the federal government’s Housing Accord set a target to construct one million new homes in the next five years, it was criticised, on the one hand, for being insufficiently ambitious to impact housing affordability and, on the other, for being unachievably high. When the government doubled down and increased the target to a total of 1.2 million homes, it certainly raised eyebrows.

Building 1.2 million homes equates to an average of 240,000 homes per annum. Australia has only come close to this level of home building on two occasions in the past. The first was in a single year at the peak of the apartment boom of the mid-2010s (232,000 in 2016), and the second was in a single year at the peak of the COVID era cycle (228,000 in 2021).

Adding 240,000 homes per year would be close to meeting the nation’s annual demand for new homes and would take pressure off housing costs. However, the question remains whether this level of home building can be achieved and sustained for five years.

On both occasions, when we went close to building 240,000 homes, the demand was bolstered by an extraordinary tailwind. The apartment boom was supported by a capital influx from foreign developers and overseas investors, while generous incentives and record low interest rates contributed to the COVID cycle boom. However, both stretched the capacity of the industry.

As things currently stand, there are no signs of an extraordinary tailwind to lift home-building activity to the level required to achieve the target. Foreign investors have been taxed out of the market, the combination of COVID-era stimulus measures is unlikely to be repeated, and the highest mortgage rates in 15 years are suppressing household demand.

While achieving the target appears unlikely, it must not detract from efforts to make it happen. 

Hypothetically, if an unanticipated tailwind did reignite demand for new homes, there are still significant questions over the capacity to deliver so many homes.

Will there be enough serviced land to deliver the target number of homes? Can the industry’s supply chain sustain such activity levels without building material shortages and further price increases? And most importantly, does the industry even have the workforce capacity to deliver this quantity of homes? 

At this point, we should be able to answer yes to all these questions confidently. Unfortunately, we can’t. 

When looking at the labour force, it’s estimated that there are around 277,827 skilled trade workers in the residential building industry. These are spread across the industry’s 12 key trade occupations, which include carpenters, electricians, plumbers, painters, bricklayers, cabinetmakers, plasterers, tilers, concreters, roof tilers, floor finishers and glaziers.

In 2023, when industry surveys continually revealed shortages of skilled trade workers, this workforce completed around 173,000 homes. Achieving the activity needed to build 1.2 million homes over five years (240,000 homes per annum) equates to a 39 per cent increase from the 2023 level. To meet this, we conservatively estimated that the workforce would need to increase by at least 30 per cent, which equates to more than 83,000 additional trade workers across these occupations.

Creating training opportunities for Australian residents should be a priority for policymakers. However, training the number of workers required in the next five years would mean nearly doubling the number of apprentices in training – an implausible proposition.

Firstly, there would need to be a huge jump in the number of workers willing to train in these occupations within the timeframe of the Housing Accord. Secondly, there would need to be a commensurate increase in employers willing to take on apprentices. Thirdly, the capacity of the VET sector would need to increase rapidly to accommodate the increased student numbers. 

Lastly, there is the issue of timing. It typically takes a year or more before apprentices become productive workers and four years to become fully qualified. Skilled trade workers are required throughout the five years to achieve the target, not just in the latter stages. 

Skilled migration is the other lever in the government’s control to address the skill shortages. While the federal government included funding to accelerate visa processing for skilled trades workers in this year’s budget, numbers arriving with the needed skills remain minuscule.

Data from the Department of Home Affairs show just 3644 workers on temporary skill shortage visas working in these key trade occupations are currently in Australia. This equates to only 0.8 per cent of the workforce. Furthermore, only a share of these migrant workers is likely working in residential building. 

To avoid a situation where labour constraints are a major factor preventing the delivery of this lofty target, the government will need to more than double its efforts to address the shortage of skilled trades workers. 

Following the recent cabinet reshuffle, we have a newly minted Housing Minister, Claire O’Neil, a new Skills Minister, Andrew Giles, and Tony Burke now taking on immigration responsibilities as the newly appointed Minister for Home Affairs. They have a huge job ahead of them!

First published 23 September 2024