Renovations are exacerbating Australia’s housing shortage, new KPMG study says

Australia’s shortage of housing is being exacerbated by a preference for renovations over new homes.

A new study by consulting and audit firm KPMG has found that spending on renovations jumped to 40 per cent of total new residential building activity this year, up from 32.4 per cent five years ago.

“This indicates that there is not enough money and resources being attracted to expanding the housing stock,” KPMG urban economist Terry Rawnsley said.

“More straightforward planning processes and lower risks for builders make renovating existing homes a favoured option over adding multiple homes on the same block.”

The shortage of new housing has become a serious challenge for governments, contributing to rising home prices that have locked many younger Australians out of the market.

Last year, the Federal Government pledged to build 1.2 million homes over the next five years. However, industry has questioned the commitment, saying it is too ambitious.

New home building, on a per capita basis, is at its lowest levels since 1988. Adjusted for inflation, spending has fallen 14 per cent in the past five year, while spending on renovations is up 6.5 per cent.

Nearly 10 per cent of the new private residential construction is so-called one-for-one replacements, where a detached home is demolished and replaced with a single new home.

The pandemic was a big driver of that activity, as cashed-up Australians confined to home shores by border restrictions spent up on homes and renovations.

At 9.1 per cent, WA has the biggest one-for-one replacement rate this year behind Victoria on 15 per cent.

“Homeowners are absolutely entitled to renovate their homes to add value to their investment and to ensure existing housing stock is maintained,” Mr 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.”

KPMG said inner city and coastal areas were seeing the most renovation.

Brisbane had the most renovation activity by value in the 2024 financial year at $874.2 mi. However, Sydney’s inner west had the biggest renovation share of total spending at 44 per cent, followed by the city’s swanky suburb of Woollahra (36 per cent) and the city’s northern beaches region (36 per cent).