HIA predicts gentle landing for housing ‘super cycle’
Almost two years since the HomeBuilder scheme was introduced, a flurry of detached home construction and renovation activities is keeping the industry at its peak, according to the Housing Industry Association (HIA).
HIA chief economist Tim Reardon said this “super cycle” of housing activity across Australia would help the residential property market “operate at capacity through 2022”.
However, looming interest rate hikes could put the brakes on this cycle.
“When interest rates inevitably increase, it will reduce households’ borrowing power,” explained Mr Reardon.
“Slower house price growth will see banks increasingly reluctant to lend for the construction of a new home and have a negative effect on consumer confidence.”
It’s also not a question of when a cash rate rise will be announced, added Mr Reardon, because a rate rise, regardless of timing, “will lead to the same outcomes”.
The impact of inflation has already been felt in the home building industry, Mr Reardon revealed, with land, materials, and labour costs on the rise.
Due to house prices outpacing these cost increases, its significant impact on housing demand has yet to be felt but may soon arise due to compounding reasons.
Slower population growth as a result of border closure for two years, as well as slower house price rise and stricter lending conditions, can stifle “demand for new detached homes starting 2023”, said Mr Reardon.
He further predicted the volume of detached home builds is likely to drop through 2022 to 2023, returning to pre-COVID levels by the end of 2023.
This has led Mr Reardon to predict the rise in appeal of multi-unit homes, like townhouses and apartments, as buyers are priced out of the detached housing market. The expected rise in migration will soften the impact of a rate rise for these types of dwellings, he highlighted.
In order to prevent a hard crash for the “super cycle”, the chief economist opined that “if the national economy remains strong and unemployment low, the bottom of this next cycle will not be sharp, deep or sustained”.
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