Construction industry set for worst year in a decade, HIA report warns

This year is slated to be the worst in over a decade for the residential construction industry, with these conditions not seen since the GFC.

This year is slated to be the worst in over a decade for the residential construction industry, as cash-strapped Australians opt out of building their homes, which will lead to a massive slowdown in the sector.

That’s according to the latest Economic and Industry Outlook Report from the Housing Industry Association (HIA), released on Tuesday.

In the report, the HIA said the RBA’s pursuit to “slay the inflation dragon” with nine consecutive interest rate rises was bringing the building industry to its knees.

In fact, they said the outlook was dire for 2023, with conditions not seen like this since the global financial crisis.

The latest data found that the purchase or construction of a new home had already fallen to its lowest level since 2012 across Australia.

This is expected to worsen as interest rates continue to rise, and with the full ramifications of previous rate hikes finally hitting home.

HIA Chief Economist, Tim Reardon, said the building boom was well and truly over and that projects in the pipeline would dry up this year and into 2024.

“The 2022 cash rate increases were sufficient to bring this building boom to an end and further increases in 2023 will accelerate this downturn,” Mr Reardon explained.

The number of dwellings being built every year. 2021 was a boom year.

This year, 188,120 building projects are forecast to commence.

That’s a significant reduction compared to 2021, at the height of the boom, when 231,220 houses underwent construction.

By 2024, these figures will fall to their lowest levels since the Global Financial Crisis, with just 178,660 new home starts, according to the report.

The HIA was scathing about Australia’s interest rate policy, with the report’s authors writing that the building sector, and the wider economy, would fare far better with less government intervention.

“After nearly 30 years of continuous growth, despite global recessions, wars and resource cycles, it took a conscious decision by the Government to create the conditions for a technical recession in Australia,” the report stated.

“A casual view of the Australian economy in 2023 would suggest that again, it is bulletproof from anything other than a self-inflicted wound.”

Mr Reardon reiterated this sentiment, saying: “It is unfortunate that the RBA appears set to repeat the cycle the building industry experienced after the GFC.”

However, there was one silver lining – the number of units to be built is expected to increase in the coming 12 months, which will ease the housing crisis occurring in each state.

“Unlike detached home construction, the number of multi-units commencing construction should increase as the acute shortage of housing, returning migrants and students, and affordability constraints continue to drive demand for housing,” Mr Reardon added.

By 2025 and 2026, the number of detached housing projects is expected to increase slightly in the start of a recovery.

There’s been a palpable drop in home loans for building works being taken out since the 2021 boom.

Not only has interest in building a brand new home dropped off, but construction companies are facing another reckoning as tough market conditions threaten to put them out of existence.

Many builders have been stuck honouring locked-in price contracts

A number of large firms entered into insolvency over the past year including Probuild, Condev Construction, Pivotal Homes, Waterford Homes, Privium, Home Innovation Builders and Norris Construction Group.

At least seven builders have also collapsed so far this year.

It’s been caused by a “perfect storm” of factors including supply chain disruptions, skilled labour shortages, skyrocketing costs of materials and logistics, and extreme weather events.

Originally published as Construction industry set for worst year in a decade, HIA report warns