2024 Could See 'Decade Low' Level of New Houses Built in Australia

The Housing Industry Association (HIA) has published its monthly new home sales report, and the outlook for the Australian housing supply does not look promising.

Over the three months to July 2023, there were 33.4% fewer new homes sold compared to the same period in 2022.

The most recent ABS lending indicators showed lending for the construction of new dwellings was down 33.1% in July compared to the same time last year, while there were 14.1% fewer loans for the purchase of new dwellings.

High interest rates and escalating construction costs are slowing the pipeline of new homes in Australia, and HIA senior economist Tom Devitt does not expect things to turn around anytime soon.

"Weak new home sales, together with an elevated number of previous sales being cancelled, reinforce the expectation that Australia will see a decade-low level of home building next year," Mr Devitt said.

"Even a cut to the cash rate now would not produce a recovery in new house commencements until the second half of 2024."

The news will do little to assuage those concerned about further housing shortages, with the Department of Home Affairs projecting net overseas migration will reach 315,000 in 2023/2024.

Mr Devitt believes lowering interest rates would help bring back demand for new properties, and called for policy change to alleviate cost pressures in the construction sector.

"Meeting the appropriate levels of new housing for Australia’s current and future population depends not only on interest rates, but also changes to policies that inflate construction costs, such as tax settings, land release and planning reforms and macro-prudential rules that squeeze out owner occupiers and investors alike," he said.

Market expectations currently are that the RBA will once again keep the cash rate steady at 4.10% at September's meeting.

More building companies hitting trouble

Of particular concern in the HIA report was the increased job cancellation rate.

For every four new home sales recorded, one previous sale was cancelled, with banks becoming increasingly strict about financing projects signed before construction costs blew out and interest rates hurt buyers borrowing capacity.

Construction companies are taking big hits, and yesterday it was announced another major builder was entering administration.

Victorian home builder group Harmac entered voluntary administration on Wednesday, with administrators looking to ensure the company can fulfill existing obligations to customers.

A spokesperson tried to provide assurances Harmac was not going into liquidation, and would be working to ensure it does not join the long list of Aussie builders that have gone under in the past 18 months.

Porter Davis, A1A homes and Millbrook homes are some of the major names to collapse, under pressure from escalating construction costs, labour shortages and low demand.

Any sign of relief for construction costs?

CoreLogic’s Cordell Construction Cost Index (CCCI), which captures changes to construction-related expenses, recorded an 11.9% increase over 2022, the highest on record.

Pandemic related disruptions to supply chains saw material costs swell, while a dearth of skilled tradespeople also meant labour became more expensive.

However, the CCCI is seemingly suggesting pressures could be easing, with the June '23 quarter seeing the smallest increase since September 2020.

The annual growth figure was 8.4%, which CoreLogic Construction Cost Estimation Manager John Bennett said was a positive development compared to the preceding two years.

"The latest index figures will bring some comfort and reassurance to the beleaguered building and construction industry as we’ve seen two consecutive quarters of growth more in line with long-term averages," Mr Bennett said.

"2024 could see 'decade low' level of new houses built in Australia" was originally published on Savings.com.au and was republished with permission.