HIA released its Economic and Industry Outlook report today. The report includes updated forecasts for new home building and renovations activity nationally and for each of the eight states and territories.

“With current policy settings, is anticipated that it will take at least six years to build 1.2 million homes,” added Mr Reardon. 

“The volume of multi-unit commencements has fallen to almost half the volume commenced in 2016, before the impact of taxes on investors took effect. More recently, apartment construction has also been constrained by labour and material shortages and cost. This appears likely to continue for another year.

“In the face of taxes on foreign investors, rising costs and longer build times, a significant volume of high-rise apartment projects will remain on the shelf.

“For many projects, this will require refinancing and then reapproval which will necessitate higher construction costs due to changes to the National Construction Code. This will further delay commencement for several years. 

“The subsequent shortfall in supply over the next few years will be observed in extremely low rental vacancy rates and extra ordinary growth in rental prices.

“Competition for inputs remains intense against other sectors including non-residential construction and mining. This is occurring amid continued spending on public infrastructure projects, which is crowding out the home building, especially the high-rise apartment sector.

“On the other side of the market, the outlook for detached house commencements appears set to reach a trough in the second half of 2024. From this low point, the recovery in detached home construction will be slow and inconsistent across the jurisdictions, with the major markets of New South Wales and Victoria faced with the challenge of a high cost of land, taxes and changing migration patterns.

“Policy decisions at a state and local level will be a strong influence on the recovery of detached house building. The market has been driven by global factors over the past three years, and as these factors erode, it will be policies at a more local level that will determine the cost of delivering a new home to market.

“There are significant economic growth opportunities for regions that increase the supply of homes, which will have a catalytic impact on broader economic activity.

“This low volume of home building will occur amid pent-up housing demand and low unemployment levels that further drive demand. A rise in established home prices will make building a new home increasingly attractive despite the headwinds of higher interest rates. 

“It is possible to build the Australian Government’s target of 1.2 million homes over the next five years, but it will require significant lowering of taxes on home building, easing pressures on construction costs, and decreasing land costs. Even if this volume of homes is commenced, the housing shortage will remain,” concluded Mr Reardon.

Detached house commencements: There is forecast to be 95,380 detached homes that will commence construction in 2023/24, down by 13.4 per cent compared to the previous year and down by almost a third on the 2020/21 peak. This will mark the trough of the cycle and the weakest financial year in more than a decade. A weak recovery is expected in the year after, to 97,770 in 2024/25, before exceeding 110,000 by 2026/27.

Multi-unit commencements: Multi-units are forecast to produce a 2023/24 financial year total of 64,350, up by 2.0 per cent compared to the decade trough of the previous year. An increase in unit commencements is anticipated to see 78,280 multi-unit commencements in 2024/25 as high rental prices drive lower density unit commencements. A further 93,480 in 2025/26. From 2026/27 starts will remain around 100,000 per year as the positive impact of the Olympics, institutional investors and build to rent projects begin to have a tangible impact on the volume of supply.

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