Australia’s house building sector is facing its worst year in a decade as a result of the Reserve Bank’s ongoing interest rate rises since May 2022, according to the latest report by the Housing Industry Association (HIA).
The report predicts that the number of detached housing starts will decline in 2023 and fall below 100,000 starts per year for the first time in a decade by 2024, with just 96,300 expected starts, marking a significant slowdown from the 149,000 starts recorded in 2021. HIA chief economist Tim Reardon said the 2022 cash rate increases were enough to bring the building boom to an end and that further increases in 2023 would accelerate the downturn.
The report revealed that major lenders ANZ and NAB are now expecting interest rates to peak at 4.1% as the Reserve Bank attempts to curb inflation, which is currently at 7.8%, its highest rate since 1990. Reardon warned that the full impact of last year’s rate increases is yet to be felt by households and that lending for the purchase or construction of new homes has already fallen to its lowest level since 2012.
New home sales have dropped by nearly 50%, and the HIA predicts that further interest rate rises will push sales even lower. Multi-unit starts were also affected last year by labour and material shortages, prompting many developers and builders to postpone projects into late 2023.
However, the report suggests that unlike detached homes, the number of multi-units under construction should increase as returning migrants and students, the affordability of housing, and the acute shortage of homes continue to drive demand. Reardon said that the RBA appears to be repeating the cycle experienced by the building industry after the global financial crisis, bringing the industry to a standstill before being forced to cut rates again to avoid damaging the wider economy.
He suggested that one policy tool at the government’s disposal to ease the barriers restricting first home buyers’ access to mortgages would not undermine efforts to reduce inflationary pressures. Over the past decade, macro-prudential restrictions have made borrowing for those with less than a 20% deposit increasingly expensive, leading banks to lend more to those who already own a home.
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