This article is from the Australian Property Journal archive
AUSTRALIA recorded its sharpest annual fall in housing commencements since the introduction of the GST, but the Housing Industry Association believes the end of the downturn is in sight.
The number of homes that commenced construction nationwide fell from 225,061 in 2018 to just 174,770 last year.
Tim Reardon, HIA chief economist said the slowdown in home building is a significant reason why the national economy slowed to a stall.
“Despite this whopping contraction, we believe that the cycle had just about run its course and the overall housing market reached a turning point at the end of 2019, buoyed by interest rate cuts and house price growth.
“The next upswing in new home building will not see a return to the hive activity of the boom years, 2014 to 2018. These years set a record that will not be eclipsed in the foreseeable future. Population growth has pulled back from previous heady days but has nevertheless remained relatively strong, just shy of 400,000 people per annum.”
Reardon said the anticipated recovery in new home building will be a “very modest affair”.
“At best, this next cycle will see the current rate of home building maintained, with slow growth in coming years.
“In order to pull out of this cycle, the home building industry requires a strong national economy.
“Unfortunately, international factors are likely to impact on the volume of home building in Australia over the medium term. The effects of trade and tourism restrictions with China pose a material downside risk to our forecasts. As these effects are still emerging we have not factored them into our forecasts.”
Multi-unit construction is expected to be affected more negatively than that of detached houses.
On average, during the boom that ran from 2014 to 2018 commencements totalled nearly 105,000 multi-unit homes per annum. HIA is forecasting the industry to commence construction on 75,750 multi-unit homes through 2020/21, 77,390 in the following year and then 80,980 in 2022/23.
Detached housing starts through the boom period averaged nearly 117,000, but this is expected to reach detached house starts to rise from 101,390 houses in 2020/21, to 102,750 houses in the following year and then to 104,350 in 2022/23.
According to the Australian Bureau of Statistics, building approvals slipped in December but outperformed expectations.
Mixed activity and approval numbers in the final stages of 2019 suggest some more pain is on the way for the construction activity before some recovery in the second half of the year.
Reardon said a credit squeeze was a key brake on the previous cycle, and while some restrictions have since loosened there has been a structural tightening of money lending. This is excluding many aspiring home owners from the mortgage market and will continue to adversely impact home ownership rates, he said.
“Typically, any drop in owner occupier demand for new homes would likely be filled by investors, except this time round we wouldn’t count on the same wave of foreign investment, given the barriers they now face with punitive rates of stamp duty when entering the domestic housing market.
“As a consequence we expect upward pressure on rents.”
