Longer construction times that are already slowing new apartment projects will worsen Australia’s housing shortage as immigration picks up, and any further increase in rates will hamper investment and put Australia’s target of 1 million new homes at risk, the Housing Industry Association says.
In its latest set of quarterly forecasts, the lobby group for large volume builders said Australia was on track to achieve 965,760 homes over the five years to 2028 – only 35,000 below the federal government’s target – but warned that a higher benchmark lending rate would make this unlikely.
“If [the Reserve Bank of Australia] continues to increase the cash rate in 2023, this forecast will be downgraded significantly,” the HIA said on Wednesday.
“Households have only seen half of the increase in the cash rate impact their monthly mortgage payments.”
The report repeats comments the lobby group made last week calling on the central bank to not lift the cash rate target above the current 2.85 per cent. But its detailed forecasts show the importance of apartments in offsetting the coming slump in detached home-building as the hangover caused by higher borrowing costs and the end of incentive schemes such as HomeBuilder kicks in.
With detached housing starts likely to drop to 101,000 in 2025 and only recover slowly from there, the need grows for more attached dwellings: apartments, townhouses and semi-detached homes.
Supply will grow but not fast enough. The HIA says so-called multi-unit starts will jump to 81,550 this year from 73,920 last year as constraints on labour and materials ease.
A steady, 2 per cent annual rate of growth will lift attached dwelling starts to 85,550 by 2025, but a faster rate of growth is needed the industry association says.
“Multi-unit starts will need to accelerate from 2024 if there are to be 1 million homes constructed in the five years from this point,” it says.
Australia has previously built more than 1 million homes in a five-year period, so the government’s ambition is not unrealistic.
Over the five years to 2018, the country built more than 1.1 million new homes – with a peak 234,780 in FY2016 – but this included the record east coast-based boom in apartment building on top of strong detached house construction, the HIA said.
That boom cycle ended as housing price growth slowed because of the large volume of new supply and restrictions on lending to investors and foreign buyers through macroprudential measures imposed by regulators, the HIA said.
RBA vs government
The cost of money will be a crucial part of the development cycle over the coming period, the lobby group said.
“The conflict between the RBA slowing housing activity to cool the economy and the Australian government seeking to increase housing supply, will be the most significant factors affecting starts over the next five years,” it said.
“A return of stable and reliable migration, strong employment growth and demand for exports should ensure a return to a robust national economy that is able to withstand changes in global economic cycles. A stabilisation in housing density, a partial return to working from the office and the end of supply chain challenges will add to this stability.”
This article is from Australian Financial Review, please click the following link for the original article: https://www.afr.com/property/residential/apartments-a-risk-to-1-million-home-target-hia-says-20221116-p5byqx