Demand for new homes to drop amid COVID-19 border closures report


Demand for new housing is set to drop sharply over the next five years as pandemic-sparked border closures weigh on population growth, new research shows.


New demand is set to fall by 286,000 dwellings by 2025, compared with the pre-COVID-19 outlook, as almost one million fewer people than previously expected will be living in Australia by the middle of the decade, according to the National Housing Finance and Investment Corporation’s State of the Nation’s Housing 2020 report.


The amount of new homes built is tipped to be about 93,000 more than needed to meet demand by 2025.


The forecasts are based on how many new households are expected to form, as suggested in population growth projections, and not on housing market sentiment.


Under even slightly more optimistic population forecasts, the amount of excess supply would be only 46,000 homes.


And if vaccines are rolled out sooner than expected, and international borders reopened, the excess supply would be negligible, the report said.


But the extra supply comes after years of not building enough new homes, the report warns.


“We’ve got the big shock to net overseas migration, which is reducing demand and that’s driving a short-term period of oversupply,” NHFIC director of research Hugh Hartigan said.



“That should be seen in the context of a couple of decades of underbuilding.


“We’re projecting an oversupply of housing, which is short-term, but this should be seen as partial catch-up.”


With more new supply than new demand, there could be more downward pressure on rents, especially in Sydney and Melbourne where vacancy rates are already higher with international students unable to return, the research found.


This could improve rental affordability in those cities, but might not have a similar effect elsewhere.


The affordability effect was likely to be concentrated in the rental market, rather than for first-home buyers, but the report also noted first-time buyers have been taking advantage of low interest rates, government stimulus and the brief pandemic-sparked dip in dwelling prices.


Sharp falls in demand for new housing in the short-term are projected by the report.


New demand for 2021 was previously expected at 176,300 homes, followed by 186,900 in 2022.


But the post-COVID projects are just 54,200 and 91,600 respectively due to the drop in migration, the report found.


From 2023, as migration recovers and the economy picks up, housing demand is tipped to lift to 144,700 homes, then recover close to pre-crisis levels of 178,800 homes in 2024.


Demand for detached and medium-density dwellings are tipped to recover to pre-crisis levels by 2024. However, apartment demand will be still well below previous levels at just 31,700 by 2025, compared to 47,600 in 2019.


On the supply side, construction of new homes has been responding to stimulus measures such as the HomeBuilder grant, first-home owner grants and the First Home Loan Deposit Scheme (New Homes).


The number of additions is set to rise from 170,000 in 2020 to 181,000 in 2021, the report found.


As the stimulus runs out, new additions are set to total only 148,000 in 2025.


New apartments have been more affected by the downturn than detached homes given the international border closures, the report found.


“HomeBuilder has brought forward more investment in the detached segment, and that’s certainly contributed to more building jobs,” Mr Hartigan said.


“This period of low demand does allow us to reflect on the demand drivers and supply drivers, and how we can ensure enough housing gets built for a population that’s likely to grow again – for some point in time once the borders reopen.”


The widespread shift to working from home might also affect the type of homes people want to buy – for example, with a home office.


“There’s a real discussion at the moment in terms of how COVID is likely to affect the way we work and live,” he said.


“It’s probably going to take some time to see how enduring those behaviours are.”



Ref: ELIZABETH REDMAN, SENIOR NEWS PRODUCER (on 15 Dec 2020). Demand for new homes to drop amid COVID-19 border closures report. Retrieved from


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