Foreign investment is very low and Australia cannot rely on it the same way it did in the last decade, expert says
House prices in Australia will continue to increase due to construction problems, according to real estate group Ray White.
In a recent article, Ray White chief economist Nerida Conisbee said that by the end of 2023, construction costs started to moderate but not fall, primarily because of material costs combined with labour prices.
Other problems added to these, Conisbee said, noting that building industry insolvencies are now at record high levels without any sign of them slowing down.
“Costs may no longer be rising at such a fast pace but it is getting very hard to find someone to build anything,” she said.
In the 12 months prior to March 2024, about 2,632 construction firms entered external administration or had controllers appointed. Firms in New South Wales accounted for nearly half of this figure, Conisbee said.
Conisbee said that it will probably take at least 18 months for this issue to resolve, which is one of the biggest problems in meeting house targets.
She also noted that the construction industry will not be able to build 1.2 million houses over the next five years even if money was no object, adding that the ability to build more homes is currently “particularly bleak.”
In addition to construction problems, money is not available to fund new developments, Conisbee said.
She said Australia cannot rely on foreign investment the same way it did in the last decade because investment from other countries is currently “very low.”
“Build-to-rent is still in its infancy and is only being built by a small number of developers,” she said, adding that both the state and federal governments have record-level debt due to constructions being channelled into infrastructure projects.
Conisbee noted that it is cheaper for owner-occupiers and investors to buy established houses instead of building new ones.
“And this will force up pricing until it matches construction costs,” she said.
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