Australia’s Housing Challenge: The Key Factors Shaping Our Market

Hi, Andrew Bell here with you again.

As we approach the upcoming Federal Election, discussions around the housing crisis will undoubtedly intensify. While the situation continues to worsen, there’s a fundamental underlying issue that rarely gets the attention it deserves. This factor will also have a significant impact on future government spending.

One key issue is Australia’s declining birth rate, which has fallen to an all-time low. The birth rate last peaked in 2009 when the average number of babies per woman was 1.97. In contrast, the latest data from 2023 shows a decline to just 1.5. That year, there were 286,998 registered births—the lowest figure since 2006.

For context, the “replacement level” required to maintain a stable population over the long term is considered to be 2.1. This means we are far from the post-World War II baby boom era. As you can see from the graph on screen, birth rates have been on a steady decline.

There’s a common belief that without migration, a declining birth rate would lead to a shrinking population. However, another key factor to consider is the death rate. Countries like Japan, Russia, and South Korea, which also have very low birth rates, are experiencing population decline. Yet in Australia, the situation is different—the death rate has also fallen to an all-time low. In 2023, there were 183,131 recorded deaths, down around 4% from 2022 when the pandemic temporarily drove numbers up. While this still represents an increase of 35,000 deaths compared to a decade ago, when considering that the population has grown by 3.5 million in that time, it’s quite remarkable.

If we put migration aside for a moment, this demographic shift means we now have an aging population that is not vacating homes at the same rate as in previous generations. As a result, fewer properties are coming onto the market.

Another notable consequence of declining birth rates is the reduced demand for primary schools. By the 2030s, it’s estimated there will be 150,000 fewer primary school students than previously forecasted. This trend will carry through to high schools in the following decade. Meanwhile, at the other end of the spectrum, demand for aged care facilities, retirement communities, and mature living residences continues to rise—signaling a major shift in our future infrastructure needs.

Housing Market Pressures

Returning to the housing issue, immigration remains a key driver of demand. With fewer young people entering the workforce, Australia will need to rely on migration to fill critical job vacancies. A particularly pressing example is the construction industry itself, where there is already a severe shortage of laborers and skilled tradespeople. Without them, we simply cannot build the volume of homes required to meet demand.

While discussions continue around the number of homes that need to be built, the reality is that construction is not keeping up. This is a multi-layered issue involving rising building costs, a lack of skilled labor, infrastructure expenses, capital costs, and the inability of the industry to produce affordable housing where it’s most needed. The unfortunate truth is that we are struggling to build homes that everyday Australians can afford.

Latest Market Insights

Two recent research findings highlight the ongoing challenges in the housing market:

1. House price growth has ticked back up in both January and February after several months of decline in late 2024. While January’s increase was a modest 0.2%, it still contributed to a further drop in housing affordability, which has now declined for the third consecutive quarter.

2. As a board member of the Real Estate Institute of Australia, I have access to insightful industry data, and the latest report shows that mortgage repayments now require 50.1% of the median family income as of the December 2024 quarter. This represents a 1.4% increase from the previous quarter—yet another indicator of the mounting affordability crisis.

All of these factors reinforce why Australia’s housing problem cannot be solved by minor policy tweaks. We need real action, and that means putting pressure on politicians at all levels—Federal, State, and Local—to implement meaningful incentives. These should support homebuyers, developers, and lenders alike to invest in new housing construction.

The Bottom Line

When people ask me about the state of the real estate market, I can certainly speak to short-term trends—monthly fluctuations, regional differences, and variations by property type and price range. However, the fundamental issue remains: Australia’s growing population continues to drive demand, while an aging population reduces housing supply. Yet, we are simply not building enough homes to keep pace.

This issue will persist until governments take decisive action to get builders on-site and homes under construction in the locations and price ranges where they are most needed. For the sake of future generations, let’s ensure that housing is a key priority in the upcoming election.

I look forward to speaking with you again in a fortnight.

Warm regards,
Andrew Bell

Andrew Bell, OAM
Chairman
The Ray White Surfers Paradise Group