Rising interest rates can cause building commencements to slow within six months, but in this cycle, the lag will be significantly longer, according to the Housing Industry Association. Source: Timberbiz
HIA released its economic and industry Outlook Report for Australia today. The Outlook Report includes updated forecasts for new home building and renovations activity nationally and for each of the eight states and territories.
“There were 75.7% more detached homes under construction at the end of 2021 than pre-COVID. There are also more homes approved and waiting commencement than in any previous cycle,” HIA Chief Economist Tim Reardon said.
“With this elevated volume of homes in the pipeline, the number of homes under construction will remain at this high level until at least June 2023.
“This will delay the adverse impact of rising rates on the industry, and therefore the wider economy,” he said.
“This strong ongoing demand has occurred at the same time as significant constraints on materials, land and labour, leading to rapid increases in the cost of construction.
“The boom in demand for new homes could be observed across many developed economies as households seek additional space, given all the extra time they have spent at home. Consequently, global demands had seen prices for some key building materials rise significantly.
“The ABS estimates that the cost of home building materials, not including the cost of labour, increased by 15.4% in the year to March 2022,” Mr Reardon said.
“On the ground, the increases are higher still. This is the fastest annual increase in the official estimate of home building materials since 1980 and they are still rising.”
He said that the United States had seen an almost identical cost increase with material costs for residential construction estimated to have increased by 21.2% over the year to April 2022 compared with the previous year.
“An acute rental shortage has also seen strengthening demand for apartments. A further deterioration in affordability will see demand switch in favour of multi-units and there are early signs that migration is returning. These factors will drive additional demand for multi-units and more than offset the adverse impact of rising interest rates on this sector of the housing market,” Mr Reardon said.
“With detached home building remaining at capacity until at least June 2023 and the volume of multi-unit commencements increasing, the shortage of building materials and labour will continue to be the main pinch point for the industry.”
