Australian new home construction hits historic lows while renovations soar

As Renovation Spending Booms

New private residential construction spending per capita has reached its lowest level since 1987-88, while renovation spending has surged from 34.2% of total residential construction spend in 2018-19 to 40% in 2023-24.

One-for-One Replacements and Renovation Spending on the Rise

Investment in New Housing Per Resident Averages $186,000 Since 1993-94

One-for-one replacements, where a detached property is demolished and replaced with a single new home, account for almost 10% of new private residential construction spending. Victoria has the highest rate at 12.6%, followed by Western Australia at 9.1%, and New South Wales at 8.7%.

Renovation Spend Booms as Population Growth Surges

Renovation spend has increased significantly, particularly since the pandemic. The analysis found that renovation spending has become a preferred option over adding multiple homes on the same block due to more straightforward planning processes and lower risks for builders.

Local Government Areas with Highest Renovation Spend

The local government areas with the greatest spend on renovations are:

1. Brisbane

2. Sydney’s northern beaches

3. Boroondara in Melbourne’s east

4. Mornington Peninsula, south-east of Melbourne

5. Stonnington, in the city’s inner south-east

Post-Pandemic Decline and Renovation Spend Trends

Two years later, the per-capita investment has declined by almost 50%, sinking to $113,000 in 2023-24 as population growth surged and investment flatlined.

Covid also had an impact on renovation spend, according to the analysis. As new housing investment increased between 2012 and 2020, alterations and additions investment declined and reached its lowest share of 33.5% in 2017-18. However, this investment rebounded significantly in recent years – a trend further amplified since 2020 as those driven by remote work and lifestyle changes opted for larger and better homes.

Encouraging Investment in New Housing

The analysis showed that there needed to be planning settings which encouraged investment in increasing housing density, rather than preference for one-for-one replacements, KPMG said. “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.”

Housing Shortages Exacerbated by Lack of Investment in New Housing Stock

According to a recent report by KPMG, new private residential construction spending per capita has reached its lowest level since 1987-88, while renovation spending has surged from 34.2% of total residential construction spend in 2018-19 to 40% in 2023-24.

Shifting Labour and Materials Away from Renovations Could Help Relieve Housing Shortages

The report suggests that shifting some labour and materials away from renovations and towards the construction of new housing stock could help alleviate current housing shortages. Urban economist Terry Rawnsley states, “This indicates that there is not enough money and resources being attracted to expanding the housing stock.”