Australia’s ‘renovation resurgence’ might be draining much-needed cash from these nations’ housing fix as residential construction hit its lowest level in almost four decades.
The analysis comes via a report by advisory firm KPMG, which revealed that new private residential construction spending per capita is at its lowest level since 1987-88, as renovation spending surged from 34.2 per cent of total residential construction spend in 2018-19 to 40 per cent in 2023-24.
Adjusted for inflation, spending on new private residential construction in 2023-24 was 14 per cent lower than five years earlier, while spending on renovations is up 6.5 per cent.
“For every nail hammered and brick laid in residential construction, 40 per cent of it is going into renovating a pre-existing home,” said Terry Rawnsley, an urban economist at KPMG.
“This indicates that there is not enough money and resources being attracted to expanding the housing stock.
“More straightforward planning processes and lower risks for builders make renovating existing homes a favoured option over adding multiple homes on the same block.”
And to make matters worse, a large portion of homes included in the deflating residential construction stat includes detached properties that have been demolished and replaced with a single home (known as a one-for-replacement), meaning they aren’t adding to the nation’s dwindling housing stock.
KPMG found that almost 10 per cent of new private residential construction spending is on one-for-one replacements, with Victoria having the highest rate at 12.6 per cent of new residential construction, followed by Western Australia at 9.1 per cent, and New South Wales at 8.7 per cent.
A sign of the times
While it won’t come as a shock that investment in new housing has taken a nosedive in recent years, the shift away toward renovations seems to have been a sudden effect of the COVID-19 closures back in 2020.
Between 2012 and 2019, new housing spending looked to only go up, increasing by 58 per cent. But after pandemic border closures saw thousands of international workers and students depart, that per-capita investment skyrocketed to $1.9m per capita.
As a result, the per-capita investment declined by almost 50 per cent two years later, sinking to $113,000 in 2023-24 as population growth surged and investment flatlined, the analysis found.
But Covid seemed to have the opposite effect on renovation spending, the analysis found.
As new housing investment increased between 2012 and 2020, alterations and additions investment declined and reached its lowest share of 33.5 per cent in 2017-18.
But this investment has significantly bounced back in recent years, as homeowners driven by remote work positions and lifestyle changes since 2020 have opted for bigger and better homes.
The analysis revealed that Brisbane led the home and reno charge as Aussies flocked toward the sunshine state, followed by Sydney’s northern beaches and Boroondara in Melbourne’s east.
Mornington Peninsula, south-east of Melbourne, and Stonnington, in the city’s inner south-east, were also included in the top five.
But with house prices only expected to rise and the government struggling to make good on their home-building promises, KPMG said there needed to be incentives in place that encouraged investment in increasing housing density, rather than one-for-one replacements.
“Homeowners are absolutely entitled to renovate their homes to add value to their investment and to ensure existing housing stock is maintained,” Rawnsley said.
“However, shifting some of the labour and materials away from renovations and one-for-one replacements towards the construction of new housing stock can help to relieve current housing shortages.”
