Australia’s homebuilding industry was operating at capacity throughout 2021, which has continued into 2022 and has shown no signs of slowing.1 Improvements have been primarily inhibited by the availability of land, materials and labour as the nation saw a significant increase in demand.
A nationwide desire for lower density housing has played a large part in demand increases.
This increase in demand, combined with supply shortfalls, has impacted not only material costs, but the cost to employ tradespeople as well. From January to September 2021, the cost of tradesmen activity saw surges of around 5.2%, alongside material costs which saw an 8% increase.
The cost of residential land, in conjunction with the above, saw a nationwide average price hike of 8.5% across the 2020/21 financial year.1 This was much higher in Sydney, which experienced increases as high as 27.1%.2
The ABC reported that the overall cost to build a new home rose by 20% in 2021, thanks to a combination of the above.3 Unfortunately, that’s not the worst of it. Prices are now set to rise yet again, due to the federal government imposing a tariff increase of 35% on imports from Russia and Belarus. This will primarily affect lumber and laminated beam prices from those nations.
In Compare the Market’s survey, it was revealed that the number of people looking to build or buy a home reduced considerably once the pandemic hit and the market drastically changed. Of the 40.6% that were intending to build pre-COVID-19, one in ten has changed their mind and are no longer interested in pursuing a new home.
To gain an understanding of why this is the case, Compare the Market asked the reasons why people had given up their dream of owning a new home. The most common reason, as identified by more than a third of the population (35.6%), was the unaffordable prices that have continued to rise in an unprecedented way. This was followed by a change in financial situation (12.9%) and the market being too difficult to break into (10.7%).
45-54-year-olds appear to be struggling the most with price hikes – almost half of this age group (47.6%) stated unaffordability as the deciding factor for no longer wishing to build.
Perhaps unsurprisingly, young adults under the age of 24 were the most likely of all age groups to cite difficulty breaking into the market.
The Canadian Home Builder’s Association (CHBA) released data in late 2021 that indicated ongoing increases in the cost of construction had added close to CAD$70,000 to the average price of a 2,482 square foot home.4 Not only this, but disruptions in labour and supply have meant that construction timelines were experiencing 10-week delays on average, according to the CHBA quarterly Housing Market Index.
The cost of employing workers in the industry has also risen an average of 19% in comparison to pre-pandemic levels.5
From 2015 to 2021, new housing prices in Canada increased by 21%. However, a vast majority of this growth happened between 2020 and 2021 alone, where the year-on-year average rose by 15%.6
Results from Compare the Market’s survey show that throughout the pandemic, the number of people actively hoping to get into the homeowners’ market reduced in comparison to those hoping to do the same before 2020. Nearly 40% of the population had an intention of building pre-pandemic, but similarly to Australia, around one in ten have since changed their mind.
In most cases (34.2% of respondents), this is due to prices becoming too unaffordable in a short span of time. Some less common explanations for the drop in those looking to build are a change in financial situation (17.9%) and a further 9.3% who found that the market was simply too difficult to break into.
Once again similarly to those in Australia, adults aged 24 and under were the most likely of all age groups to find the housing market too difficult to break into.
In the United States, the affordability of housing has been a long-running issue. In a recent survey on behalf of the National Association of Home Builders (NAHB), an alarming 79% of the population indicated that housing affordability was a problem in their state.7 In contrast, only 5% say there is not a problem anywhere in the country.8
As a measure of the issue, 20 million renting households in the States are cost burdened, which means that a considerable amount of their income is spent on housing. For example, around a quarter (24%) have a gross rent higher than 50% of their household income.
But the cost to live in existing homes is not the only problem. Home construction data released by the NAHB in October 2021 indicated that lumber prices had increased more than 25% in the previous month. This, combined with other significant delays and bottlenecks for materials, meant that new home prices sat around 20% higher than the previous year.9
In terms of addressing the issue, more than half of the population (55%) believes an effective support scheme from the government would contribute towards lowering the development and construction fees for builders, and incentivising builders to produce more affordable housing.8
As for what this means for American homebuyers, more than two in every five (41%) people actively looking to purchase a home have said they are unable to find one at a price that’s affordable to them.
Compare the Market’s recent survey revealed that of the three countries studied, Americans had the lowest number of adults actively looking to buy or build a home prior to the pandemic (36.4%). Of these, 25-34-year-olds were the most likely to be in the market.
There was also a considerable increase (23.1%) in 18-24-year-olds who want to build now compared to pre-pandemic. Given the general desire to build across all age groups decreased, it’s a notable peak in the data.
For the 63.1% of Americans that are no longer looking to get into the market, 27.6% of them cited unaffordability as the key reason why. This was followed by a change in both respondents’ financial situation (23.5%) and personal situation (11.8%).
Of those who find the prices too high, 55-64-year-olds are suffering the most (33.3% of this age group). Similar to the other countries studied, adults aged 18-24 was the age group most likely to struggle breaking into the market.