This transcript was generated automatically and may contain small errors.
The government wants to build over 200,000 homes a year. Now, over the last 12 months, they only built 162,000. That's a 32% shortfall. This massive goal sounds great, but in this episode, I'm going to unpack why the likelihood of this happening is close to 0%. I'm going to explain this using data on what's actually happening, why it's happening as the causes, and even more info about completion rates versus what's being told out there.
I'm Arjun Paliwal. Let's go. Firstly, when diving into this, let's break down this annual target a little bit more, right? When you've got this annual target, it's easy to say 1. 2 million homes is what we need, but it's not going to happen because firstly, when you're looking at that in that timeframe, you actually need either A, more completions or more time.
Why I say this is homes, if you, for example, look at it, could be up to 12 months of completion time, end to end, some longer and some even quicker, but not that much. Townhouses with multi dwellings attached to it could be 15 to 24 months. And then actual constructions of large dwellings like unit blocks and towers could be up to two years or two to four years, depending on the building. So what you're seeing here is that, yeah, sure, 1. 2 million homes, but even the word homes has to be defined as homes, townhouses or units.
Because when you break that down, the variance in the timeframe to complete these things can range from months to a year to multiple years. So even if you say they're going to be approved during that timeframe, they might not be built over the years ahead to reach that target. Now, those timeframes are evidenced by this chart coming up, which is on ABS building activity. And you can clearly see the new apartments are taking up to 30 months in some cases and townhouses 15 months and new houses up to 12 months. You'll also notice that they all increased in terms of the townhouses and houses after 2020, the pandemic.
But funnily enough, they actually decreased in time it takes to build for the newer shiny apartments or the larger building apartments from 2020 to 2023 that trended down from just over 30 months to about 28 months, which is a good improvement. Now, to achieve 1. 2 million dwellings by say 2029, Australia actually needs to build 240,000 properties in 2024 alone. Now, when looking at the data from last year, there was only about 162,000 built, which means there's a shortfall of about 32%, meaning it's unlikely that we're suddenly going to pull it out of the bag and just say a 32% increase happens to finish 2024. Now, if we distribute the target and we start looking at this target and go, hey, can we make it a fair distribution by population?
Which areas across the country are probably on track to hit their target if you're breaking it down by population distribution? And really, as sad as it sounds right now, it's only one. The only area is ACT. It's the only state or territory that might actually be on track to hit their first year target if you distributed that national target down to a population level. Now, among the rest of the states, I've got some other interesting data.
If you were to say, okay, ACT is up there in first place, who else is there that's getting close to that target? Well, Victoria comes second, where it's only 16% below that shortfall. Northern Territory did the worst with 84% below that shortfall and New South Wales, which has the highest population concentration in the country, was actually a 44% shortfall. So it's not looking pretty for some of our biggest states in New South Wales and from our smaller states, even though geographically they might be large as a location being Northern Territory, from a population and space available, they still came off pretty bad with only 84% below that shortfall. So it's a big drop when it comes to all the governments and what they're doing with ACT probably only on track to reach that goal that was set.
Now, if you break that down one step further, it's only 15% of SA3s that actually make their target, which means 85% won't even hit that target this year based on their forecast of building completions for that metric that was set of 240,000 homes. Now, if we're taking that metric in the same population spread and moving from capital centres to regional centres, which regional centres are doing okay or well from that building perspective to meet that target? So if we're looking at some areas doing well, it's Surfers Paradise in Broadbeach, so that's the Gold Coast region, Caloundra in the Sunshine Coast, Geelong, Maitland and Harvey Bay. So they're all the regions from a population distribution to the approvals and pipeline and completions coming through. They're the regions that are doing a little bit better and lifting above their weight when it comes to this national target if you distribute it by population.
If you actually now go the opposite, where are the areas in the most acute shortfall in comparison to this target by their local population? Now, those are areas of Gladstone down 76% from a shortfall, Mackay down 75%, Bathurst down 73% and Port Stephens down 69%. So they're at the absolute bottom of that population distribution to supply incoming. So it's clear to show that there are many parts of the country, 15% that are okay getting it there and are likely to hit it, but 85% of the SA3 regions are unlikely to hit this goal. Now, when you're looking at some of the actual causes, when you're looking at this problem that's in play, they're down to three causes.
The first cause is elevated construction costs, things like material or labour. Now, I know in recent times they have been improving, but that flow onto the end consumer just isn't showing as it should be. So that key here of elevated construction costs is the first cause of the three that have come to create this dwelling deficiency. The second one is reduced land supply and increased land prices. We've actually gone through a land price boom over the last four years in Australia.
So with that reduced supply combined with the land price boom, and if on top of that you're actually chucking on extra prices to build, the buy-in price for people is much more difficult and even developers to actually go and soak up and purchase that stock from the land prices that have increased have become more difficult as well. So increased prices, whilst you think it might be a good thing, it slows down the system as well because you now have more expensive prices to buy in to create stock, but you also have more expensive prices for the everyday consumer to actually go and buy as well, which reduces the rate of supply rather than it being cheaper and more available at higher frequency. The third and final part is increased insolvencies in the construction sector. So this is a dangerous part because construction doesn't happen overnight. Unlike an established property, you don't just buy it off the shelf that's sitting there on the domains of real estate and settle within 28, 30 or even 42 to 60 days.
The key thing is construction takes a lot of trust in the builder, a lot of belief that they'll pull through and time. Now what's dangerous here is some of Australia's strongest companies in the past or larger builders have been proven to be weak in times like today. The insolvencies hitting Australia have given such low confidence to the consumer that many of those consumers that were looking at building have now jumped into the established market just because they don't feel like they can trust a builder to deliver end to end. It's a heartbreak for people when they go down such an important project for their home or an investment and they have that company go bust, wondering whether they'll get their money back, wondering whether they'll ever be able to complete it to the way they wanted to. And so as a result, people are just going to the market where houses are established and looking to invest that money for a property there or looking to buy a home that they can live in and do renovations down the track so the property isn't taken away from them or they aren't stuck in this period where they actually have to go and figure out how they can get their builder to finish it off.
This is huge. Don't underestimate that because that negative sentiment is making a big factor on decisions. Now if you look at all three together and you imagine construction wasn't as expensive, the land prices weren't booming so people could get in both from a developer supply and also from a consumer buying and then lastly you ended up having great confidence in the industry with many people proving to build with lack of insolvencies as well happening so the industry doesn't have that negative sentiment, I can assure you more houses would have been built. Now if we zone into each of these three causes just that little bit deeper, let's start off with the elevated levels of construction. So in this chart here we're going to pull up chart 3.
14 which shows dwelling construction costs and 3. 15 which shows construction output prices. And for those maybe who are not tuning into the video, jump on the YouTube and search up InvestorKit and that's where you'll see our channel and you'll be able to hit subscribe and see the video with charts like this. But if you're listening, I'm going to do my best to give you the actual percentage movements so you can hear what's happening. So the first part is the cost of building a new house is around 40% above 2020 levels and if you look at the greater increase, it's more than 20% above the broader increases in prices across Australia.
So that's huge.
