Apartment Market Braces for Covid-19 Slowdown

Apartment commencements are forecast to decline 41 per cent from 71,600 to just 42,100 starts in 2020-21, with the contraction largely focused on high-rise apartments in east-coast cities, according to the Housing Industry Association.

Citing the slower rate of population growth as expected to weigh on the economic recovery and new home starts over the decade, the HIA has forecast starts to be around 172,000 by 2030, compared with 190,000 starts in its previous forecasts.

To give a comparison, the HIA says new home starts peaked at 234,000 in 2016.

“Even with the resilient performance of the Australian economy and the impact of HomeBuilder, the expectation is that the number of new home starts will contract from 173,000 in 2019-20 to 139,700 in 2020-21,” HIA regional director Fiona Nield said.

Apartment market to bear brunt

But it's the multi-unit market that is expected to bear the brunt of the Covid-19 shock, HIA says in its quarterly economic and industry outlook report.

“The contraction in multi-unit starts will occur sooner and be more pronounced than for the detached market,” Nield says.

In New South Wales, HIA forecast detached dwelling starts to decline by 9.6 per cent to 20,426 in 2020-21. The substantial shock is forecast to be seen in the multi-unit market, down 42.9 per cent, to 15,223 in 2020-2021.

Dwelling starts in Victoria are forecast to take a hit, with multi-units starts expected to drop by 53 per cent from 24,263 to 11,410 over 2020-2021.

Detached starts are expected to drop by 9.7 per cent, from 35,898 to 32,398.

Tough new restrictions on Melbourne construction sites saw the construction sector move to operate under “pilot light levels” earlier this month.

The Victorian Building Authority said this would remain in place until Sunday 13 September.

In Queensland, HIA forecasts that multi-units starts will decline by 19.6 per cent, from 9,632 to 7,740, in 2020-2021.

“This will leave multi-units starts down by 70.6 per cent from their peak of 26,339 in 2015-2016,” Nield said.

Queensland's detached dwelling starts are forecast to be relatively flat, declining by just 0.8 per cent from 20,027 to 19,866.

In contrast, Western Australia will see an increase in dwelling starts, with a forecast rise of 23.7 per cent to 13,320. Multi-unit starts are forecast to remain relatively flat, with a slight 1.4 per cent decline.

“There are early signs that the Western Australian market has responded well to state and federal stimulus measures,” Nield said.

A decline of 2.7 per cent is forecast for South Australia. But unit starts are forecast to fall by 42.8 per cent in 2020-2021.

HIA says the medium-term forecast shows starts gradually recovering from a new trough between September 2021 and March 2022 and returning to 163,500 starts in 2024-25.

Calls for Home Builder Grant Extension

With the federal budget two months away, Master Builders Australia is calling for the Home Builder grants to be extended for another 12 months in its pre-budget submission.

Master Builders chief executive Denita Wawn on Monday said the peak lobby group had downgraded its forecast for the housing sector by 25 per cent for 2020-2021.

“We are now predicting a 27 per cent fall in homebuilding activity compared to 2019-2020,” she said.

“If the government is any doubt, the bloodbath facing our industry is confirmed by Master Builders latest forecasts pointing to a 27 per cent fall in homebuilding activity compared to last year and a more than 17 per cent slump in commercial construction sector,” Wawn said.

The federal budget is expected to be handed down on the 6 October.