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{{propApi.successMessage}} {{region}} Change locationHunter President's report
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Greg Doodson
HIA Hunter President
The rise in the cash rate has compounded the increase in land cost, construction and regulation, constraining demand for new homes across our region.
This has seen the pipeline of work yet to commence construction hollow out quickly in the first half of 2023. Like the national story, the volume of new detached home sales this year has fallen below pre-pandemic levels and will continue to fall.
Unfortunately, the large volume of detached home building underway when the RBA increased the cash rate for the first time in May 2022 has masked the broader economic impact of rate hikes. This elevated activity sustained the industry till mid-2023.
The full impact will become apparent as the volume of detached home building slows. Given the lags inherent in this cycle, even a decision to cut the cash rate today would not produce a recovery in these commencements until the second half of 2024.
Despite this slowdown in starts, the good news is the completion of the large volume of work currently under construction will maintain stable economic growth and avoid a significant downturn in the local economy.
Leading indicators suggest the adverse effects of the cash rate have constrained the markets around Sydney and Melbourne more significantly than other jurisdictions. The shift in population away from these two cities has likely compounded this shift toward locations with more affordable land, such as that in the HIA Hunter region.
Exceptionally low rental vacancies, strong migration, and an influx of investment in high-density dwellings will see the volume of multi-unit commencements recover over the next few years. For this to occur, there needs to be a change in policy direction that both seeks to attract investment to the sector and seeks to permit the necessary investment.
The short-term outlook for home building remains very focused on changes to the cash rate. A local recovery in established home prices is encouraging, as it will support lending for the construction of new homes, but only if the cash rate doesn’t increase further.
In the medium term, the outlook will be driven by necessary changes to government policy that will remove restrictions on the availability of land and land usage, lower the regulatory and tax imposts on construction, and create an incentive to invest in the construction of new homes.
Detached houses
Detached house commencements peaked in the HIA Hunter region at 4,543 in 2021/22, a high unlikely to be broken anytime soon. Capacity constraints saw starts slow through to a solid but unremarkable 3,816 in 2022/23. From here, detached starts are forecast to be weighed down by the rise in the cash rate and are expected to continue to slow to 3,108 in 2023/24.
From this point, stable economic conditions and relatively low unemployment will support ongoing demand for detached housing and the market is anticipated to recover slowly, with 3,398 commencements in 2025/26.
Multi-units
Multi-unit commencements have been suppressed in NSW due to regulatory restrictions forcing investors away from the sector. At the same time, demand eroded due to the pandemic and loss of migration. Across our region, this saw multi-unit slow to 2,204 starts in 2021/22 before rebounding this past financial year with an increase of 10 per cent.
A growth in starts is anticipated in Sydney as speculative investors respond to an acute shortage of apartment completions. Locally, a more moderate increase is expected, with an average of 2,947 starts per annum over the next three years to 2025/26.
Want to know more? Explore HIA’s latest industry reports and data.