New home building forecast to weaken further

There is no immediate end in sight to the new home building slump but a recovery is certainly on the horizon, according to forecasts released by Master Builders Australia.

“Over the past decade, new home building in Australia hit record highs thanks to the unique combination of record inward migration and remarkably low interest rates. The surge in new apartment and unit building was especially pronounced,” Master Builders Australia Chief Economist Shane Garrett said.

“The recent slowdown in new home building is largely down to microeconomic factors – tighter credit conditions, tougher financial regulations and the imposition of heavy stamp duty surcharges on foreign buyers by a number of state governments,” he said.

“Underlying demand for new housing is still very strong with large numbers of new jobs still being created and interest rates now even lower than before. The pace of population growth remains brisk,” Shane Garrett said.

“Consumer and builder confidence is the critical factor and it will take time for this to return, especially with house prices still falling in most markets. Our prediction is that new home building commencements will bottom out during 2020/21 at 167,444 – representing a 28.3% drop on the 233,872 peak back in 2015/16,” Shane Garrett said.

“From there, we expect that the strong market fundamentals will drive new home building higher. By the end of our forecast horizon in 2023/24, new home starts are anticipated to recover to 187,658 an 11.9% increase on the low point of the cycle expected in 2020/21,” he said.

“For home renovations work, record volume of detached houses approaching their thirtieth birthdays is good news not to mention the availability of very low borrowing costs. Our forecasts envisage that the market for major home renovations will grow from $8.97 billion in 2018/19 $9.38 billion in 2023/24, a gain of 4.6%,” Shane Garrett said.