Housing boom to slow rapidly from mid-2022 report

Homes are taking twice as long to build during the coronavirus pandemic and a national building boom, but analysts warn the sector is facing a hangover as the record level of construction declines.

The peak body for the residential building sector, the Housing Industry Association (HIA), has raised concerns that two years of minimal population growth will start to bite by mid-2022 even if borders open.

Housing construction has boomed during the pandemic.Credit:James Brickwood

In its latest quarterly outlook the association acknowledges that those who have been trying to build during the pandemic have faced rising costs and timeframes due to labour and material shortages as the sector goes through its biggest year on record. Lockdowns have also presented a challenge, but are not cited as a major factor behind delays. On the HIA’s figures this has resulted in a blow out in the time it is taking to build a home from a seven to nine-month period, to beyond 12 months.

But HIA chief economist Tim Reardon said this experience is unlikely to be the norm over the next few years. In 2020/21, the association estimates there was a record 135,390 detached dwellings that started construction, or 32.5 per cent more than the year before.

This is expected to be a “short-lived” record with detached starts in the 2021 calendar year to exceed 143,100.

“The home building sector has pulled the economy out of the recession,” Mr Reardon said.

But housing commencements are forecast to fall to 125,030 in 2021/22. It is at this point when the industry will start to be hit with the effects of two years without strong population growth, higher building costs and the end of the federal government’s HomeBuilder scheme.

Mr Reardon said home building will decline below decade-long averages, dropping to 97,850 in 2022/23 and a low of 93,770 the year after.

UNSW City Futures Research Centre’s Professor Bill Randolph agreed with the HIA’s assessment.

“There isn’t any immigration so there’s no one coming in to pick up the slack,” Professor Randolph said. “[Builders are] going to find themselves in trouble, it’s a rational concern.”

However, he said this could lead to a kneejerk reaction to change the planning system to try to push through more approvals.

He encouraged builders to instead consider supporting large-scale social housing investments as it would provide them a good pipeline of work and assist with housing affordability.

Mr Reardon is among several economists and analysts who expect the Reserve Bank to start increasing rates ahead of 2024, though recent outbreaks have made an earlier hike less likely. This is also expected to hit home building figures due a rise in costs.

Mr Reardon said the two major uncertainties in the outlook are any changes in migration and interest rates. The forecasts assume a return to migration from mid-2022 and a population growth rate of 1.5 per cent.

But even with some international arrivals the strong volume of new home starts won’t be sustained. In particular, homeowners who started building due to the federal government’s HomeBuilder grant will see their properties finished by the middle of 2022 and this will result in a commensurate decline in homes under construction.

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Jennifer Duke is an economics correspondent for The Sydney Morning Herald and The Age, based at Parliament House in Canberra.

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