New home building set to slow in Australia after unprecedented growth

New home building in Australia will slow for the next two years but will bottom out at what will still be a historically healthy level of activity, it is suggested.

The latest forecast from the Housing Industry Association (HIA) says it expects a measured return to more normal levels of home building activity over the next couple of years after a period of exceptional growth.

HIA acting chief economist Warwick Temby pointed out that the recent peak in new home building was unprecedented with an all-time record of 229,823 new homes started in 2015/2016.

This record level of building has made a major contribution to Australia’s economic growth over the last few years and eased the under supply of housing for both owner occupiers and renters that had built up over the previous 10 years,’ he said.

He also pointed out that multi-unit building, especially apartments in the Eastern States, has driven much of the growth in this cycle and is also forecast to lead the slowdown in new activity over the next couple of years.

From their peak of 117,000 in this calendar year multi-unit commencements are expected to fall by over 40% by 2018/2019 while the forecast for detached homes is 103,000 starts predicted for 2018/2019, down 9%on the peak this year.

However, the forecast falls in new activity will not be uniform across the country. Temby explained that Western Australia and South Australia have started their down cycle well in advance of other states.

Total new commencements are forecast to decline 3.1%, 18.5% and 5.1% over the period 2016/2017 to 2018/2019, which would take commencements to a trough of 172,242, which is the average for the last 10 years.

‘Actual building activity on the ground will not decline in the same way as new starts due to the substantial volume of work under construction that will not be completed until 2018 and into 2019,’ Temby said.

The report also says that home renovations are forecast to grow, counteracting some of the decline in the new home building activity. By 2018/2019 renovations are forecasts to have grown by 6.5% to be worth $32.96 billion in that year.

Meanwhile, a separate HIA report suggest that taxes, fees, levies and other Government charges are affecting housing affordability with the tax payable on a new home an increasing burden to home buyers with around 40% of the cost of a new property compiled of tax.

‘Increasing the supply of new housing is an obvious key to improving housing affordability. But retaining the enormous taxation burden on the cost of new homes is an anathema to addressing the problem,’ said Graham Wolfe, HIA’s chief executive for industry policy.

‘It’s the taxes and levies that are charged on every new home that overwhelmingly defeat all attempts to reduce housing costs. Yet housing, a basic requirement that all Australians should be able to access, is taxed more heavily than other parts of the economy,’ he added.

The report says that State based stamp duty on the purchase of a typical new home alone adds a $91 per month burden on household mortgage repayments and on average, families in New South Wales will pay considerably more every month for the life of their home loan.

‘Residential investment in housing has made a considerable contribution to arresting rental costs for thousands of families, particularly in New South Wales where new supply has moderated rental increases over the past two years,’ added Wolfe.