New home building expected to increase as market confidence returns

The Housing Industry Association (HIA) has released its Economic and Industry Outlook report, forecasting an upturn in new home building activity across Australia.

HIA Chief Economist Tim Reardon said most housing markets appear to have reached or passed the trough in home building by mid-2024, following the fastest increase in the cash rate in a generation.

“It is nine months since the RBA’s last rate rise and market confidence is returning. It is only the heavily taxed markets of NSW and Victoria that are yet to see a trough in detached home building in 2024,” Mr Reardon said.

Key findings from the report include:

Western Australia, Queensland and South Australia are leading the recovery, with increasing contracts for new home construction since the start of the year.
New South Wales and Victoria are lagging due to new tax imposts and policy changes, which are adding to market uncertainty and exacerbating housing shortages.
Australia’s economic fundamentals remain resilient, with low unemployment, a stable economy, and strong population growth.
Productivity in the sector is improving as adverse impacts from border closures and policy disruptions ease.
Material price rises have returned to pre-pandemic levels, and labour shortages have eased to some extent.

Mr Reardon noted that Australia could see greater home building volumes if policymakers reduced inflated costs of land and construction.

The report forecasts:

Detached houses:

99,060 commencements in 2023/24, down 10.1% on the previous year
A modest 0.8% increase to 99,890 in 2024/25
Activity expected to accelerate, exceeding 115,000 by 2026/27

Multi-units:

60,970 commencements in 2023/24, down 4.0% on the previous year
A 13.0% increase to 68,880 in 2024/25
Forecast to reach a peak of 104,240 in 2027/28

Mr Reardon concluded that the increase in new home commencements could be accelerated if governments address market failures, tax imposts, and constraints on the industry.