The residential construction boom will continue in 2022

The housing construction boom in Australia is expected to continue through 2022 despite the rising cost of labor and materials and the rising cost of a new home.

In its latest Economic and Industrial Outlook report, the Housing Industry Association (HIA) found that demand for new single-family and multi-unit construction remains incredibly strong.

Sales since HomeBuilder’s end, which ran from April to October 2021, are the strongest since 2017, when more than 115,000 single-family homes began construction.

This means that the expected slowdown after the government aid boom is expected to be moderate.

Housing demand is also strong, with multi-unit approvals 34.3% higher in the September 2021 quarter than the same period last year.

HIA chief economist Tim Reardon said demand remained strong due to economic lockdowns.

“Demand for new single and multi-family housing has remained strong, suggesting that the current boom in housing construction will continue through 2022,” he said.

“The industry will continue to operate at full capacity throughout 2022, limited by the availability of land, labor and materials.

“In the year through September, the price of skilled trades increased 5.2 percent, while the price of materials, as measured by ABS, increased 8 percent.

“The price of residential land increased 8.5% in fiscal year 2020-2021, resulting in an increase in the cost of a new house and land complex.”

Individual accommodation

A record 148,880 single-family homes are expected to begin construction in 2021, which is a 31.3% increase from 2020.

Another 121,200 housing starts are forecast for 2022, which, although lower than 2021, remains 11.4% above the decade average through 2020.

Mr Reardon said the single-family home building boom will end when interest rates rise.

“This is expected to happen in mid-2023 and will push single-detached home starts to a low of 96,930 in 2024,” he said.

“This low is a solid 6.2 percent above the last low in 2012.”

Mr Reardon said there had also been a marked shift towards lower density housing during the pandemic and that trend showed no signs of slowing down.

“This change is not just for those units that move to single dwellings, but includes a change to fewer people per household,” he said.

The number of people per household fell from 2.8 people at the end of the 1980s to 2.5 people per household at the end of 2020.

“It is likely that the pandemic has accelerated this trend as households sought more space and lifestyle benefits, especially after experiencing lockdowns,” Mr Reardon said.

Units

Despite the shift to lower density, demand for housing remained stronger than expected.

Multi-family housing starts are expected to reach 76,440 in 2021, 8.9% more than in 2020.

This demand comes from existing Australian residents.

“The demand from new residents and tourists is very low,” Mr. Reardon said.

“This is due to the border closures, but demand from existing residents is very likely to be higher than expected.”

Nonetheless, expected multiple-unit housing starts are expected to drop to 70,130 in 2022, before climbing to 72,010 in 2023 and remaining stable in 2024, before growing again from 2025.

Other key points

Population

Australia’s population growth rate fell to its lowest level since 1916, with international borders closed, meaning two years of population growth due to migration were lost.

Between March 2020 and August 2021, nearly 200,000 more people left the country than they arrived and those who arrived were largely returning Australians.

These returnees were more likely to obtain a single-family house than an apartment in the city.

The loss of overseas migration was immediately felt in the multiple housing market when COVID-19 hit, as students, tourists, and overseas migrants mostly stay in apartments in capital cities across the country. their arrival.

The 2021 Intergenerational Report predicts that migration levels will return to pre-Covid levels in 2024/2025, but says it will not make up lost ground.

Even when international borders reopen, mandatory quarantine will mean migration will be slow.

Regional migration

People yearning for a sea or tree change have used COVID-19-induced disruption to relocate, especially with the increase in remote working.

Students and regional workers who would normally relocate to cities also stayed behind.

Brisbane and south-eastern Queensland saw the greatest influx of interstate migration, while many people left Melbourne for other parts of Australia.

“Even if migration were to return to pre-Covid levels, Melbourne will likely end the decade with a smaller population compared to what was expected before Covid,” Mr Reardon said.

GDP, interest rates and wages

In the June 2021 quarter, the Australian economy was 1.6% higher than in December 2019, and the federal budget forecasts that this growth will continue at 4.25% in fiscal year 2021-2022.

GDP growth of 2.25-2.5% is forecast for the next three years.

The RBA has forecast the rate of wage growth to return to near pre-pandemic levels of between 2% and 2.5% by the end of this year.

Wage growth is expected to strengthen further, to around 3%, by the end of 2023, due to an unemployment rate of around 4%.

The HIA predicts that interest rates will rise in mid-2023.

“We believe interest rates will be below 2% until at least 2025 and will be below 5% in 2030,” he said.

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