What's driving the home starts?
Nearly a million new home building starts are expected between now and mid-2026, driven by low interest rates, a return to pre-pandemic migration levels and record levels of apprenticeships.
Ahead of the Reserve Bank of Australia’s first board meeting of the year today, building and housing groups have released forecasts that predict demand for both residential and commercial housing will remain strong in the short term, with 980,000 new home starts expected through mid-2026, according to a report by The Australian.
With rising inflation and a sharp drop in unemployment, the RBA is expected to reconsider its cash rate strategy. Economists predict that the cash rate could rise from its current record-low 0.1% in the second half of the year.
Master Builders Australia said that “low interest rates, expected resumption of population growth and labour market recovery all augur well for the next few years in addition to the huge transport infrastructure program.”
MBA projected sustained growth in the housing sector through 2025-26, driven by high demand for residential building and engineering construction, The Australian reported. The group forecast that about 980,000 new homes and apartments will begin construction between 2021-22 and 2025-26.
The Housing Industry Association said that 148,880 detached houses commenced construction in 2021, a record growth of 31.3% over the previous year. In its pre-budget submission, the HIA said new home construction is likely to slow in 2023.
“This is broadly in line with the average of the 10 years to 2020,” HIA said. “There is considerable downside risk to the levels of residential building in 2024. The recent peak in activity is likely to cast a shadow and rising interest rates will weigh on starts in 2024. Over a longer horizon, we anticipate a similar number of homes will be built this decade as had been projected prior to the COVID recession.
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“Greater acceptance of remote working arrangements is likely to favour greater demand for lower density dwellings in well-connected regional areas,” HIA said. “This may partially reverse the trend towards higher density apartment living observed over the last decade.”
HIA said demand for residential construction would remain strong in the short term.
“Recent data suggests that price growth slowed late in 2021, which likely reflects an affordability constraint at the higher price point and a shift in interest rate expectations,” the group said. “There has been a distinct shift towards lower density housing during the pandemic and this trend does not appear to show signs of slowing.”
MBA said that with rising inflation impacting the construction industry more severely than other sectors, “larger volumes of inward migration over the coming year are likely to soothe any emerging wage pressures.”
MBA said that the longer the cash rate stays at its current record low, “the more favourable it will be for building and construction activity, given their sensitivity to financing costs. Mortgage interest rates are at very low levels by historic standards, a situation which has helped demand. Low interest rates have also reduced financing costs for builders and developers and helped support the supply of new homes.”
Both MBA and HIA pushed for the federal government to help maintain momentum in the sector through tax reform and incentives, a reduction in red tape and an increase in funding for social housing, The Australian reported.
