Construction of new private homes in Australia has sunk to its lowest rate for nearly 40 years, while spending on renovations has ballooned, new research shows.

Analysis by professional services group KPMG released today found new private home building spending per capita has slumped to its lowest level since 1987-1988.

In sharp contrast, renovation spending shot up from 34.2 per cent of total residential construction spend in 2018 to 2019 to 40 per cent in 2023 to 2024.

“For every nail hammered and brick laid in residential construction 40 per cent of it is going into renovating a pre-existing home,” said KPMG urban economist Terry Rawnsley.

“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.”

The report shows nearly 10 per cent of new private residential building spending is on one-for-one replacements – where a detached home is demolished and replaced with a single new home.

KPMG found Victoria has the leading rate of one-for-one replacements at 12.6 per cent, ahead of Western Australia (9.1 per cent) and New South Wales on 8.7 per cent.

The boom in one-for-one replacements has been influenced by the pandemic, when the fall in international migration dramatically reduced demand for new dwellings, while lower interest rates, a surplus of construction labour and a big jump in home upgrades during lockdown triggered a jump in activity.

Coastal and inner city suburbs are recording the highest renovation spending.

The high property values in beachside areas with good amenities means one-for-one replacements are commercially viable.

In the inner city, restrictive planning and heritage regulations also help prevent more than one dwelling from being added to a block.

The KPMG figures show the Brisbane local government area, the largest in Australia, has the highest rate of spending on renovations at nearly $900 million. It’s followed by Sydney’s Northern Beaches ($350 million) and Boroondara ($300 million) in eastern Melbourne.

To encourage investment for increasing housing density, rather than one-for-one replacement, there needs to be planning benchmarks.

“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.”