A million new homes to drive recovery

Low interest rates, a migration boost and record levels of apprenticeships will drive housing and construction, with 980,000 new homes expected by mid-2026.

Leading building and housing groups say demand for residential and commercial construction will hold up in the short-term.

Low interest rates, a return to pre-pandemic migration flows and record levels of apprenticeships will drive housing and construction ­activity across the country, with 980,000 new home building starts expected through to mid-2026.

Ahead of the Reserve Bank of Australia board meeting for the first time this year on Tuesday, the nation’s leading building and housing groups have released new forecasts showing that demand for both residential and commercial construction will hold up in the short-term.

Amid rising inflation and a sharp fall in the unemployment rate, the RBA is expected to rethink its outlook, with economists predicting the cash rate could rise from a record low 0.1 per cent in the second half of the year.

Master Builders Australia said “low interest rates, expected resumption of population growth and labour market recovery all augur well for the next few years in addition to the huge transport infrastructure program”.

The peak lobby group will release its pre-budget submission and construction activity forecasts on Monday, projecting sustained growth across the sector through to 2025-26 on the back of high demand for engineering construction and residential building.

Between 2021-22 and 2025-26, MBA forecasts about 980,000 new homes and apartments will begin construction.

The Housing Industry Association said 148,880 detached houses commenced construction in 2021, representing record growth of 31.3 per cent compared to the previous year.

In its pre-budget submission, the HIA says new home construction is likely to begin declining in 2023.

“This is broadly in line with the average of the 10 years to 2020.

“There is considerable downside risk to the levels of residential building in 2024.

“The recent peak in activity is likely to cast a shadow and rising interest rates will weigh on starts in 2024,” the HIA submission says. “Over a longer horizon, we anticipate a similar number of homes will be built this decade as had been projected prior to the Covid recession.

“Greater acceptance of remote working arrangements is likely to favour greater demand for lower density dwellings in well-connected regional areas. This may partially reverse the trend towards higher density apartment living observed over the last decade.”

The HIA said strong demand for residential building would remain in the short-term.

“Recent data suggests that price growth slowed late in 2021, which likely reflects an affordability constraint at the higher price point and a shift in interest rate expectations. There has been a distinct shift towards lower density housing during the pandemic and this trend does not appear to show signs of slowing.”

With rising inflation impacting the construction industry greater than other sectors, the MBA said “larger volumes of inward migration over the coming year are likely to soothe any emerging wage pressures”.

MBA’s building and construction forecasts report says the “longer the cash rate stays at its current level, the more favourable it will be for building and construction activity, given their sensitivity to financing costs. Mortgage interest rates are at very low levels by historic standards, a situation which has helped demand. Low interest rates have also reduced financing costs for builders and developers and helped support the supply of new homes.”

The HIA and MBA urged the federal government to help maintain momentum in the housing and construction industries via tax reform and incentives, slash red tape and increase funding for ­social housing.