Longer construction times of new apartment projects will exacerbate Australia’s housing shortage, while any further rate hikes will deter investment and jeopardize Australia’s target of 1 million new homes, according to the Housing Industry Association.
In its latest set of quarterly forecasts, the peak national industry association for residential building in Australia said the country was on track to achieve 965,760 homes over the five years to 2028 – that’s only 35,000 below the government’s target – but warned that a higher benchmark lending rate would make this unlikely.
HIA said that “if [the Reserve Bank of Australia] continues to increase the cash rate in 2023, this forecast will be downgraded significantly,” and noted that “households have only seen half of the increase in the cash rate impact their monthly mortgage payments,” The Australian Financial Review reported.
The report reiterated earlier comments by the lobby group calling on the RBA to not hike the OCR above the current 2.85%. Its detailed forecasts, however, showed how important apartments were in counteracting the coming slump in detached home-building, due to the effects of higher borrowing costs and the end of incentive schemes such as HomeBuilder.
There is a growing need for attached dwellings – apartments, townhouses, and semi-detached homes –as detached housing is tipped to fall to 101,000 in 2025 before slowly recovering.
HIA said that as labour and material constraints ease, the so-called multi-unit starts will increase, from 73,920 last year, to 81,550 this year. A steady 2% annual growth rate will raise attached dwelling starts to 85,550 by 2025, but a faster rate of growth is needed, the lobby group said.
“Multi-unit starts will need to accelerate from 2024 if there are to be one million homes constructed in the five years from this point,” HIA said.
The government’s ambition was not unrealistic, as the country previously built more than a million homes over a five-year period.
Over the five years to 2018, more than 1.1 million new homes were built in Australia, with a peak of 234,780 in FY2016, but this included the record east coast-based boom in apartment building on top of strong detached house construction, the HIA said.
That boom cycle came to an end as housing price growth eased due to the large volume of new supply and lending restrictions to investors and foreign buyers through macroprudential measures imposed by regulators, HIA said.
According to the lobby group, the cost of money will be a key component of the development cycle over the coming period, AFR reported.
“The conflict between the RBA slowing housing activity to cool the economy and the Australian government seeking to increase housing supply, will be the most significant factors affecting starts over the next five years,” it said. “A return of stable and reliable migration, strong employment growth and demand for exports should ensure a return to a robust national economy that is able to withstand changes in global economic cycles. A stabilisation in housing density, a partial return to working from the office and the end of supply chain challenges will add to this stability.”
