Australia’s New Home Building Market Toughest in 10 Years

Australia’s new home building sector is expected to face its toughest year in a decade largely thanks to declining house prices and the fallout from the royal commission, reveals Master Builders Australia.

The peak body for the nation's $200 billion building and construction industry expects the number of new houses and units built in Australia to decline by 25 per cent from a construction peak three years ago through to 2022-2023.

Master Builders Australia chief economist Shane Garrett described the coming year as a challenging one for the industry.

“New home building across Australia is facing its toughest year in almost a decade,” Garrett said.

The reaction to the Hayne Royal Commission has slowed the flow of mortgage credit within the housing market, the biggest factor currently restricting activity, Garrett explains.

“Uncertainty in the lead up to the upcoming Federal Election is also delaying activity in the market. People want to know what the colour of housing policy will look like before they enter into commitments,” he said.

Around 234,000 new homes were started at the peak of the market in 2016-17.

Master Builders anticipate that new home building will drop to 210,200 during 2018-19, with a further decline of 6.1 per cent to 197,500 during 2019-20.

A succession of further declines will bring new home starts down to 175,900 by 2022-2023, which by then the report says it will be the weakest performance in a decade.

Non-residential building has gathered momentum over recent years, expanding by 10.6 per cent during 2017-2018. The forecast anticipates another strong year of growth with a 16.8 per cent increase expected, but adds that “activity is likely to drift lower over the medium term.”

Australia’s economy still strong

The nation’s economy is performing reasonably well overall with the latest figures indicating it grew by 2.8 per cent over the year to the September 2018 quarter.

“The fundamentals of the Australian economy are actually pretty solid at the moment with the robust labour market fuelling a healthy pace of migration-driven population growth,” Garrett said.

“As a result the underlying demand for new home building is still elevated but unfortunately this is not being translated into stronger activity on the ground because of the credit crunch and decision paralysis ahead of the election.”