Housing supply reforms could play an important role in improving housing affordability in Australia, with the Productivity Commission arguing that regulation is making new homes slower and more expensive to build.
In its interim findings, the Commission points to poorly designed planning and regulatory processes as barriers to increasing Australia’s housing supply.
The issue isn’t simply how many homes Australia builds. It’s also where homes can be built, what types of homes are permitted and how quickly developments can move through the approval process.
While increasing housing supply won’t solve affordability pressures overnight, making it easier to build more homes in desirable locations could gradually give Australian buyers greater choice.
Why Is Housing Supply Important for Affordability?
Housing affordability is influenced by many factors, including interest rates, population growth, household incomes, construction costs and the availability of suitable homes.
When demand for housing grows faster than supply, competition for available properties can put upward pressure on both property prices and rents.
Increasing supply isn’t an instant fix, but over time, having more homes available in the places people want to live can provide buyers and renters with greater choice.
The Productivity Commission argues that reforming planning and land-use regulation could be an important part of achieving that.
Could Planning Rules Be Limiting New Housing?
According to the Productivity Commission’s interim report, poorly designed regulation can increase the cost and time involved in delivering new housing.
Land-use controls can restrict how land is developed, including the density and types of housing that can be built in particular locations.
The Commission argues that relaxing land-use controls is one of the most important reforms governments could consider to increase housing supply.
Potential reforms raised include allowing more three-storey development on residential land, reducing minimum lot sizes and permitting more apartments in high-demand locations.
The aim is to allow more homes to be built where people already want to live.
What Could Housing Supply Reforms Look Like?
Planning reform doesn’t necessarily mean replacing Australian suburbs with high-rise apartment towers.
In many areas, it could mean allowing a broader mix of housing.
That might include townhouses, terraces, duplexes, smaller blocks, low-rise apartments and other medium-density developments.
Sometimes referred to as the “missing middle”, these types of homes can sit between detached houses and large apartment developments.
Allowing greater housing diversity could provide more options for first home buyers, downsizers, families and people who want to live closer to established employment, transport and services.
Faster Housing Approvals Could Also Help
Planning rules are only one part of the equation.
The Productivity Commission also identified complex and lengthy approval processes as a barrier to new housing development.
Depending on the project, navigating multiple planning, infrastructure and regulatory requirements can add significant time before construction even begins.
Those delays can increase costs for developers and builders, which can ultimately flow through to the price of new housing.
Simplifying regulation and improving coordination between housing and infrastructure planning could potentially help projects progress more efficiently.
Why Infrastructure Matters When Building More Homes
Building more homes isn’t simply a matter of approving additional houses and apartments.
New and growing communities also need infrastructure.
That can include roads, public transport, water, sewerage, electricity, schools, healthcare and community facilities.
Better coordination between housing development and infrastructure investment could help ensure new homes are built in locations that can support additional residents.
This is particularly important as governments look for ways to increase housing density in established suburbs and major growth areas.
Will Building More Homes Make Housing Affordable?
Increasing housing supply could help improve affordability over time, but it isn’t an overnight solution.
Australia’s housing market is influenced by a complex mix of supply, demand, interest rates, lending conditions, construction costs and population growth.
Planning reform alone won’t suddenly make every property affordable.
However, making it easier to build a greater number and variety of homes in desirable locations could gradually increase choice and reduce some of the pressure created when housing supply fails to keep pace with demand.
For buyers, greater housing diversity may also create more options at different price points.
Thinking of Building? Construction Loans Work Differently
If you’re considering building rather than buying an established property, it’s important to understand that construction loans generally work differently from standard home loans.
Instead of receiving the entire loan amount when the property settles, construction finance is typically released progressively as the build reaches agreed stages.
These are commonly known as progress payments.
Depending on the lender and building contract, funds may be released at stages such as the slab or base, frame, lock-up, fit-out and completion.
During construction, borrowers will generally pay interest on the amount that has actually been drawn rather than the entire approved construction loan amount, subject to the particular lender and loan structure.
What Should You Consider Before Signing a Building Contract?
Building a home can involve more financial moving parts than purchasing an established property.
Before committing to a building contract, it’s worth understanding your:
- Borrowing capacity
- Expected deposit and upfront costs
- Estimated construction loan repayments
- Progress payment structure
- Potential variations or additional building costs
- Financial buffer
- Living expenses or rent during construction
- Lender requirements for the builder and contract
Building costs can change during a project, so having an appropriate financial buffer can be particularly important.
How Much Can You Borrow to Build a Home?
Your borrowing capacity for a new build will depend on factors including your income, expenses, existing debts, deposit, credit profile and the lender’s serviceability requirements.
The lender will also generally consider the land value, building contract and expected value of the completed property.
This is why it’s useful to understand your finance position before signing a building contract.
Knowing your approximate borrowing capacity can help you establish a realistic budget for the land, build and associated costs.
Planning a New Build?
Housing supply reforms may eventually make it easier for more Australians to build or buy homes in the locations they want, but financing a new build requires its own preparation.
If you’re considering buying land and building a home, understanding construction finance, borrowing capacity and your financial buffer before committing to a project can help avoid surprises later.
At Home Loans Australia, we can help you understand how much you may be able to borrow, compare construction loan options and explain how progress payments may work for your project.
The building plans might start with an architect, but the financial plan should start before you sign the contract.
Contact us now to discuss your plans: https://homeloansoz.com.au/contact/
Frequently Asked Questions About Housing Supply and Construction Loans
Why does Australia need more housing supply?
Increasing housing supply can provide buyers and renters with greater choice. When housing demand grows faster than available supply, competition can contribute to higher property prices and rents.
Could planning reform improve housing affordability?
Planning reform could make it easier and potentially faster to deliver new homes, particularly in high-demand locations. However, housing affordability is affected by many factors, so planning reform alone is unlikely to solve the problem.
What types of housing could planning reforms encourage?
Potential reforms could encourage more townhouses, terraces, duplexes, smaller lots and low-rise apartments, as well as greater housing density in appropriate locations.
What is a construction loan?
A construction loan is designed to finance the building of a new home or substantial construction project. Unlike a standard home loan, funds are generally released progressively as construction reaches agreed stages.
Do you pay interest on the whole construction loan?
Generally, interest during construction is calculated on the amount of the loan that has been drawn rather than the entire approved amount. The exact arrangement depends on the lender and loan structure.
Should I arrange finance before signing a building contract?
Understanding your borrowing capacity and likely lender requirements before committing to a building contract can help you establish a realistic project budget. Formal finance approval will depend on the lender’s assessment and required documentation.
