Why new builds won’t stop in 2022
An economist has suggested that the current home building boom will likely be sustained throughout all of 2022.
The Housing Industry Association (HIA) chief economist, Tim Reardon, has made the call, having highlighted that demand for new detached and multi-unit housing has remained strong of late – despite weaker economic conditions due to COVID-19.
He has flagged “a clear shift towards lower-density housing during the pandemic” – a trend he believes won’t slow down anytime soon.
“This shift is not just those in units moving to detached housing but includes a shift to fewer people per household,” Mr Reardon revealed.
And while HomeBuilder did play some part in pushing up home building figures, the economist has noted that “leading indicators of demand show that the demand for new detached homes remains strong”.
“Sales since the end of HomeBuilder (April 2021 – October 2021) are the strongest they have been since 2017 when over 115,000 detached homes commenced construction.”
It’s that strong level of home building activity that suggests to Mr Reardon that the current residential construction boom will be maintained throughout the entirety of 2022.
There’s a number of reasons for this.
The economist suggested that the full impact of the loss of migration has not yet flowed through to detached housing demand, while low-interest rates are also fuelling activity.
“The shift to lower density is also the likely driver of recent demand for multi-units. Approvals for multi-units were 34.3 per cent higher in the September 2021 quarter than the same quarter a year earlier. This is being driven by both medium-density housing and high-rise apartments,” Mr Reardon added.
In addition, “many investors are looking through the haze of the pandemic to a brighter outlook on the other side,” while affordability constraints have also been seen to be pushing households, particularly first home buyers, back to townhouses and apartments.
Looking ahead, Mr Reardon expects the residential construction sector “will continue to run at capacity throughout 2022, constrained by the availability of land, labour and materials”.
But it won’t come as cheap as it has previously.
Over the year to September, the Australian Bureau of Statistics has observed that the price of skilled trades increased by 5.2 per cent, while the price of materials increased by 8 per cent.
The price of residential land also increased by 8.5 per cent in the 2020-21 financial year.
While this has led to an increase in the cost of a new house and land package, Mr Reardon said it shouldn’t have a material impact on activity.
From his position, “these cost increases have not led to constraints on access to finance, as the cost of an established home has increased significantly faster”.
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