New home building across Australia will be facing its toughest year in almost a decade due to declining house prices and the fallout of the banking royal commission, according to Master Builders Australia.
The organisation has released its latest forecasts, which shows around 234,000 new homes were started at the peak of the market in 2016/17. The association anticipates this output will decline to 210,200 during 2018/19 overall and fall to 197,500 during 2019/20.
A succession of further declines is expected to bring new home starts down to 175,900 by 2022/23, according to Master Builders Australia Chief Economist Shane Garrett.
“New home building was lifted to record levels in the middle of the decade by a combination of strong population growth, big house price gains, super low interest rates and keen demand from foreign buyers,” he said.
“Several of the ingredients that made up this favourable mix are no longer in place. House prices have seen sizeable reductions in a number of key markets, while state governments have erected prohibitive barriers to foreign buyers,” Garrett said.
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“Reaction to the Hayne Royal Commission has slowed the circulation of mortgage credit within the housing market and this is the biggest factor holding activity back at the moment. 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.
He adds that the fundamentals of the Australian economy are solid at the moment, with a robust labour market fuelling a healthy pace of migration-driven population growth.
“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,” Garrett said.