Warning on Problems in Australia’s Homebuilding Sector: Report

The homebuilding industry is warning that Australia’s building boom is over and is expected to drop to levels not seen since 2012.

Australia’s Housing Industry (HIA) says in its latest economic and industry outlook report that a series of cash rate increases that began in May 2022 have put an end to the building boom.

HIA Chief Economist Tim Reardon said, “When rates start to rise in May 2022, there will be a ton of work in the pipeline and a record number of homes under construction. , this will shrink rapidly as market confidence continues to wane.” Said.

He noted that by the end of 2022, financing for buying or building a new home will already have fallen to its lowest level since 2012.

“This will see single-family home starts fall below 100,000 a year for the first time in a decade until 2024, at just 96,300. ‘ said Reardon.

According to the Australian Bureau of Statistics (ABS), the total number of homes that began construction in the September 2022 quarter will be 45,489This was a 21% decrease compared to the same period in 2021.

The rapid slowdown comes as Australia welcomes international workers and students after closing its borders during COVID.

However, this surge in demand is expected to be addressed as projects for high-density housing begin this year.

In 2022, many high-density housing projects have been postponed to 2023 due to severe labor shortages and building material supply chain issues. That means there should be more apartments to start building.

Reardon said the building industry is set to experience a repeat of what happened after the global financial crisis, when the Reserve Bank of Australia (RBA) rapidly raised interest rates and stalled the industry. rice field.

“It’s also unfortunate that higher interest rates will further undermine the market’s ability to respond to a severe shortfall in housing inventory,” he said.

Reardon suggested that the government should reduce the barriers that limit first-time homebuyers’ access to mortgages.

“More than a decade of macroprudential restrictions has made borrowing increasingly expensive for people with less than 20% of their deposits,” he said. “This will inevitably lead to banks lending more to people who already own homes.”

“Reducing barriers to homeownership need not undermine efforts by the RBA or the government to ease inflationary pressures.”

It may not be as tough as it looks

While construction starts are declining, the number of buildings currently under construction has reached a record high, according to to ABS.

There were 244,479 homes under construction in September, up 0.6% from the previous record set in June.

Australian Industry Group (Ai Group) latest The performance of the construction index, which also looks at commercial activity and employment figures, showed a recovery in the sector.

He said construction activity increased after absenteeism improved. This is the first time the index has shown sector expansion since interest rates started rising.

The construction industry faces many challenges that are compounded by each other as a result of COVID restrictions, including absenteeism and labor shortages, supply chain disruptions, and rising building material costs.

This has led to the bankruptcy of a number of construction companies, including construction giant Probuild, in 2022.

Its parent company said the continued economic impact of COVID-19, the government’s “hard line” approach to managing the pandemic and Australia’s increasingly competitive construction environment contributed to its decision to end financial aid. I was.

“The Australian company has failed to complete the project on time, recover the fluctuations, delay the billing, suffer material losses in the financial period to date, and continue to raise additional funding and balance sheets. Table support is now required. [the parent company]’ said in a statement.