Number of new homes being built in Australia set to fall

New home building activity in Australia remains at elevated levels due to demand from solid population growth, very low interest rates and consistent gains in employment, according to experts.

But levels are set to fall from record highs in 2016. Shame Garrett, senior economist at the Housing Industry Association told its latest outlook meeting in Canberra that there are some concerning trends related to underemployment and decelerating GDP growth.

‘Combined with another layer of obstacles to foreign investor participation in the housing market, new home building volumes are set to move downwards over the next couple of years,’ he said.

‘Having achieved record levels early in 2016 new home building starts are clearly in a downward cycle. This down cycle is unique because we expect that the bottom of this current cycle will be in 2019 when building activity will still be higher than at the peak of the previous boom in 2010,’ Garrett explained.

He told the meeting that the peak of activity in 2015/2016 dwarfed all previous peaks and has resulted in a significant backlog of work which will ensure that the industry is busy through 2017 and into 2018.

But the housing boom was not consistent across Australia and now, with New South Wales and Victoria cooling, all indicators are that the market is well past its 2016 peak when over 231,000 new homes were commenced.

‘Even though new dwelling starts will decline over the next couple of years, the annual volume of new home starts is not likely to fall below 170,000 at any stage. By any standard, this is still a very elevated level of activity,’ Garrett said.

He pointed out that the investor side of the market has also been hit by tighter lending finance due to APRA’s recent restrictions on interest only mortgages. HIA’s Housing Outlook Report estimates that 221,500 new dwellings were started in 2016/2017, a decline of 4.5% compared with the previous year.

A further reduction of 10.7 per cent is forecast for 2017/2018 before new home starts reach a trough of 176,670 during 2018/2019. ‘The multi-unit side of the market is expected to drive the downturn in residential building, with commencements on this side of the market projected to fall by 41% from peak to trough,’ Garrett added.

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