Supporting Property Developers I A Key to Addressing the Housing Crisis

Property developers play a crucial role in maintaining the supply of housing in Australia, yet many in the industry have faced significant challenges in recent years. Since 2017, developers have been subject to numerous new taxes, adding financial strain to an already complex process. Many have found their projects financially unviable, leading some to exit the industry or, in unfortunate cases, face repossession of their development sites by financial institutions.

There is a common perception that developers are uniformly wealthy individuals profiting at the expense of others, but this does not reflect the full reality. Developers take on substantial financial risk and personal liability when embarking on a project. The long timelines associated with property development mean they must navigate fluctuating market conditions, often facing unforeseen challenges. For example, the sharp increase in construction costs following the COVID-19 pandemic had a profound impact on developers, many of whom were unable to absorb these additional expenses, leading to project cancellations and company closures.

Developers come in many forms, including small-scale investors who may be looking to build two or three dwellings on a block they have owned for decades. Many fund their projects using their superannuation or equity in their family home, rather than operating as large-scale corporate entities.

The Victorian government has allocated significant funds to housing development, but government-led construction is expensive and may not be the most efficient means of addressing the housing shortage. Given the rapid population growth, alternative approaches may be needed to meet demand effectively. Encouraging private sector participation through appropriate support mechanisms could help accelerate housing delivery and alleviate supply constraints.

Policymakers may wish to consider ways to create a more sustainable development environment that incentivizes private sector contributions. Developers are often innovative problem-solvers who respond to market needs and create housing solutions that align with consumer demand. By fostering an environment where development remains financially viable, it may be possible to bridge current housing shortfalls more effectively.

For housing projects to move forward, the financial equations must make sense. The current market conditions have made many developments financially unfeasible, contributing to a slowdown in new housing supply. Reviewing policies to ensure they support a balanced approach—where developers can operate sustainably while addressing housing needs—could be a productive step toward mitigating the ongoing crisis.

Written by Michael Hermans, Managing Director