New building activity seems sure to remain subdued into the future as stagnating population growth and decreased access to finance drags on the housing market, according to the Housing Industry Association's (HIA) quarterly economic and industry outlook report.
“Prior to COVID-19, population growth had already fallen well below expectations as overseas migration and the natural rate of population growth fell. Adding to this structural decline in population growth, the contraction in migration due to COVID-19 will further impede building activity over the decade,” explained HIA chief economist Tim Reardon.
New home starts peaked in 2016 at 234,000. Last year, they sat at 173,000 and this year they are on track to come in just under 140,000.
According to the HIA, the multi-unit market is set to bear the brunt of the COVID-19 shock.
“The contraction in multi-unit starts will occur sooner and be more pronounced than for the detached market, and focused on high rise apartments due to the abrupt halting of migration,” Reardon said.
“A slowing in multi-unit starts had been underway since 2018 when starts in this part of the market exceeded 100,000 annually.”
Reardon also believes the inaccessibility of finance to build a new home will drag on the recovery of the housing market as well.
“In the years since the GFC, Australia’s financial market and banking regulators have tightened lending requirements. It is now harder for a first home buyer with a 10% deposit to access finance than it was in 2009," he said.
“If we were to return to previous lending practices, the Australian economy would recover faster from the COVID-19 recession.”
The association anticipates the detached home building market will show slightly more resilience than the multi-unit market, decreasing heading into 2021/22 and reaching a trough in the September 2021 quarter as the government’s HomeBuilder grant draws starts forward into the March quarter.
“Of course, this positive outlook is dependent upon the progress of the pandemic and, even with a rapid recovery from this recession, the Australian economy will not return to the level of wealth experienced in 2019 for a number of years,” Reardon concluded.
