The residential home construction industry is warning that the building boom in Australia has ended and is expected to fall to levels not seen since 2012.
In its latest Economic and Industry Outlook Report, the Housing Industry of Australia (HIA) said the consecutive cash rate increases that began in May 2022 brought an end to the building boom.
He noted that by the end of 2022, lending for the purchase or construction of a new home had already fallen to its lowest level since 2012.
“This will see the number of detached housing starts to fall below 100,000 starts per year for the first time in a decade to just 96,300 in 2024. This is a very rapid slowdown from the 149,000 starts in 2021,” Reardon said.
The rapid slowdown comes as Australia is welcoming back international workers and students after closing its borders during COVID.
However, this spike in demand is expected to be addressed as projects for high-density housing kick off this year.
In 2022, acute labour shortages and supply chain issues for building materials caused the postponement of many higher-density housing projects to 2023, meaning the number of multi-units commencing construction should increase.
Reardon said the building industry is set to experience a repeat of what happened after the global financial crisis, where the Reserve Bank of Australia (RBA) quickly increased interest rates, which brought the industry to a stall.
“It is also unfortunate that higher rates will further impair the ability of the market to respond to the acute shortage of housing stock,” he said.
Reardon suggested that the government should reduce the barriers that restrict first homebuyers’ access to a mortgage.
“Over a decade of macro-prudential restrictions have seen borrowing for those with less than a 20 percent deposit become increasingly expensive,” he said. “This inevitably leads to banks increasingly lending to those that already own a home.”
May Not Be as Grim as It Seems
While the commencement numbers have fallen, the number of buildings currently under construction has reached record highs, according to the ABS.It revealed that there were 244,479 dwellings under construction in September, which was a 0.6 percent increase from the previous record set in June.
It said construction activity had risen after absenteeism improved, the first time the index indicated an expansion of the sector since interest rates began rising.
The building industry has met with a number of challenges that compounded on each other as a result of COVID restrictions, including absenteeism and labour shortages, supply chain disruptions, and soaring building material costs.
This caused the collapse of numerous building companies, including construction giant Probuild, in 2022.
Its parent company said the continued economic effect of COVID-19, the government’s “hard-line” approach to managing the pandemic, and Australia’s increasingly competitive construction environment had contributed to the decision to end its financial support.
