Big concerns for future of home building

According to HIA chief economist Tim Reardon: “The number of new homes commencing construction peaked in June 2021 and is set to continue to decline for another year under the weight of rising interest rates and land costs.”

At its peak, detached home construction saw 149,300 starts in 2021, but this number is expected to drop to just 95,370 detached house starts in 2024, which HIA flagged as the lowest number since 2012.

Looking ahead, the HIA forecasts that following on from that trough in mid-2024, detached starts will then begin to show modest growth off the back of a solid economy and population growth, reaching 110,820 new starts by 2027.

Acknowledging today’s national cabinet meeting, Mr Reardon argues that there are three things required from governments across the country to address the forthcoming shortage, which is not only affecting detached housing, but multi-unit constructions too, given there were just 63,510 multi-unit commencements in 2022 – a decade low.

Firstly, he is pushing for an increase in the supply of land for both detached and apartment construction.

According to Mr Reardon, the volume of land transactions has fallen to around one-third of pre-pandemic levels and the price has increased by more than 200 per cent over the decade.

In addition, he is pushing for a lowering of the tax and regulatory imposts on home building.

“Even in the face of an acute shortage of housing stock, there are a range of additional regulatory imposts to be imposed this year that will add around $25,000 to the cost of a new house or apartment,” he posited.

And finally, the economist argues: “This is the right time in the cycle for governments to invest in public housing stock because they will get a better return on their investment, and they will support capacity within the industry during a trough of activity.”

He stressed the importance of maintaining capacity within domestic manufacturing and among the trades base, noting that this “was never more evident than during the pandemic”.

All-in-all, “the passage of the government’s Housing Australia Future Fund is an important step as state governments continue to underestimate population growth, and the demand for housing that will flow”.

Warning that projections of demand for housing among state governments have failed to appreciate the growth in population or the number of homes required for each new resident, he said stagnation of detached home construction commencements will exacerbate issues already on show.

So much so, that “even a decision to cut the cash rate today would not produce a recovery in house commencements until the second half of 2024”.

“Exceptionally low rental vacancies, strong migration and low unemployment rates will ensure a return of investment into the construction of new houses and multi-units when the RBA stops its rate rising cycle and avoid a deeper downturn in the national economy,” the economist concluded.