Rate hikes to hit Albanese government’s ambitious one million new home target: Housing Industry Association
The central bank’s tightening could see the Albanese government’s ambitious new home target missed, warns the housing industry.
The full pain of the building downturn won’t be known until the end of next year as the Reserve Bank keeps hiking interest rates to slow the economy, putting the Albanese government’s target of one million new homes over the next five years at risk.
Repeated central bank moves to jack up the cash rate by 2.75 per cent in just six months were the fastest increase in a generation and would end the building boom, the Housing Industry Association said.
Sales of new homes are already falling and loans for new housing have retreated to pre-pandemic levels, with other leading indicators also dropping, the industry group has warned members.
A report obtained by The Australian said that lags from rate hikes to when they impact on the economy were “treacherously long”. Rate lifts began in May, when housing construction volumes were at record levels and the forward pipeline was strong.
The HIA expects the large pipeline of building work to ensure that starts remain robust to mid-2023 and the impact of higher rates will not hit building work and jobs until 2024.
“This treacherously long lag raises a very real risk that the RBA goes too far, too soon, in this cycle of rate increases. The consequences of overshooting the cash rate in this cycle are a deeper slowdown in building activity in 2024 and beyond, which will slow wider economic activity, without necessarily lowering inflation to the RBA’s target range sooner,” HIA chief economist Tim Reardon said.
Mr Reardon warned a rate-induced slowdown would be compounded by rapidly rising costs for land, labour and materials as well as the additional costs imposed from new industrial relations laws.
The sector’s woes could hit the Albanese government’s goal of building more than one million homes over the next five years. In the five years to 2018 there were more than 1.1 million new homes built in Australia, but these years spanned the apartment boom.
The HIA warned that even building one million homes over the next period would not be sufficient to address under-supply, with more work needed on planning approvals and cutting costs.
“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,” Mr Reardon said.
At the moment the HIA forecasts that 965,760 homes will start construction in the five years to 2028, but this assumes rates remain on hold, apartment projects get launched, and border opening brings back migration.
The industry body warned that if the RBA lifted the cash rate next year, its forecast would be downgraded. “The adverse impact of further rate increases from February 2023, will have a significant adverse impact on confidence just as households experience the impact of the November rate rise on their mortgage payments,” Mr Reardon said.
It is anticipated there will be 123,370 starts in 2022 – a drop of 17 per cent on 2021 – but still the second-largest number of detached starts in almost three decades.
But this will fall to 114,530 next year with a further drop off in 2024 to 101,010 before the market stabilises then recovers.
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