The Australian home building industry is seeing a drop in new builds and a boom in renovations

New home builds in Australia is at a 40 year low, but a new report from KPMG has found home renovations is booming like never before. Spending on energy efficiency upgrades and renovations accounted for 34% of the market in 2018, and now at the end of 2024 it’s up to 40%

“For every nail hammered and brick laid in residential construction, 40% of it is going into renovating a pre-existing home,” according to 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.”

Included in the ‘new home builds’ numbers are the demolition of detached properties that are then replaced with a new single-family home, which is known as one-for-one replacement.

These one-for-one replacements accounts for almost 10% of new home builds across Australia, according to the KPMG report. Broken down it shows Victoria with the highest rate at 12.6%, Western Australia at 9.1%, and New South Wales at 8.7%.

The report also found that new housing investment averaged $186,000 per resident since 1993-94.

New home spending increased by 58% between 2012 and 2019, but as the pandemic led to a spike in departures of students and international workers in 2020-21 during the pandemic led to a per-capita investment spike of $1.9m.

Now in our post-pandemic days, the per-capita investment has dropped almost by half to $113,000 in 2023-2023 despite a surge in population. The report did site Covid as having a large impact on renovation spending.

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, the last few years has shown a significant rebound in this investment, this has been attributed to pandemic lifestyle changes, most notably as people transitioned to working from home, and increase home space to accommodate that new reality.

The KPMG analysis and conclusions encouraged increasing housing density, since one-for-one replacements and renovations do not address the need for more housing units.

“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.”