Apartment Market Will Lead the Recovery: Master Builders

While the recent downturn in residential construction has been pronounced when it comes to high-density, a new forecast expects Australian apartments and units to lead the recovery in new home building in the coming years.

Taking in the latest ABS approval data, the February Master Builders Industry Forecast report says the nation is “approaching an inflection point when it comes to new home building activity”, with an updated forecast expecting the residential building sector to return to stronger levels across the next five years.

Just as the high-density side of the market drove the previous upturn in new home building across Australia, the apartment side of the market absorbed a large share of the pain, Master Builders Australia’s chief economist Shane Garrett said.

“Our forecasts envisage that the apartment and unit side of the market will lead the recovery and be the main engine of growth over the years ahead,” Garrett said.

Over the year to September 2019, the number of apartment and unit commencements dropped by 21.9 per cent compared with a 16.8 per cent drop in detached house starts for the same period.

“There is likely to be a divergence between the performance of detached house building and the higher density end of the market over the years to 2024 to 2025,” Garrett said.

“The magnitude of the recovery in high density is also expected to eclipse that of detached houses.”

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Across the period to 2025, Garrett expects the number of apartment and unit starts to increase 47 per cent on the 2019-2020 trough.

“Whereas detached house building is predicted to see much more measured growth of 18 per cent on its low point expected in 2020 - 2021,” he says.

“The effect of this will bring the high-density share of new home building to 44 per cent by 2024-2025, compared with 38 per cent in 2019-2020.”

“However, this is still short of 2015-2016 when the detached house share of new home building fell below the crucial 50 per cent share for the first and only time in Australian history,” Garrett says in the February Master Builders Australia’s Industry Forecast report.

The report expects that new dwelling commencements will bottom out at 159,268 during the 2020, 2021 financial year—32 per cent below the peak.

A recovery in new home building activity is expected to lift new home starts above the 200,000 mark by 2024 to 2025.