(Bloomberg) -- Australians are pouring cash into renovating existing homes rather than building new residences, analysis by consultancy KPMG shows, exacerbating a downturn in housing construction.
Spending on home renovations jumped to 40% of total residential construction in fiscal 2024, compared with 34.2% five years earlier, the report released Wednesday showed. In contrast, new home-building activity slumped to the lowest level in more than 35 years on a per-capita basis.
“This indicates that there is not enough money and resources being attracted to expanding the housing stock,” said Terry Rawnsley, an urban economist at KMPG. “More straightforward planning processes and lower risks for builders make renovating existing homes a favored option over adding multiple homes on the same block.”
The report underlines the challenges in Australia’s housing market where soaring prices and rental costs are piling pressure on the center-left Labor government, which has set an ambitious target to build 1.2 million homes by the end of the decade. A Freshwater poll released by the Australian Financial Review last week found housing was the second most important issue to Australian voters.
Australia is due to hold an election within six months.
The KPMG analysis shows that almost 10% of new private residential construction spending is on one-for-one replacements, where a detached home is demolished and replaced with a single new home.
The boom in one-for-one replacements has been heavily influenced by Covid-19, when a dramatic fall in international migration hit demand for new dwellings, while record-low borrowing costs together with a surplus of construction workers and a desire for home upgrades during lockdowns led to a jump in activity, KPMG said.
Despite a post-pandemic surge in migration and much higher borrowing costs, this trend has failed to reverse.
“Shifting some of the labor and materials away from renovations and one-for-one replacements towards the construction of new housing stock can help to relieve current housing shortages,” Rawnsley said.
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