Building recovery on way

Construction times speeding up and confidence returning, say builders

Home construction times are speeding up and consumer confidence in new homes is slowly returning despite a mixed report card on building activity last year, say major home builders.

Nearly 38,400 new homes started construction during the three months to December 2023, up 1.3% compared to the previous quarter, according to the Australian Bureau of Statistics.

However, Master Builders Australia analysis has revealed that new home starts fell 10.5% year-on-year to 163,285 in 2023, languishing around historically low levels.

While the latest figures paint a gloomy picture for home construction across Australia, industry leaders say there are signs that home building is recovering.

Brad Duggan, chief executive of Australia’s biggest home builder Metricon, told realestate.com.au that the industry was shifting to a more balanced market as ongoing projects were completed.

“Since the start of the year, there’s been a noticeable surge in demand for smaller, singlestory dwellings, indicating a clear preference shift among buyers,” Mr Duggan said.

“Since mid-January 2024, we’ve experienced a remarkable uptick in inquiries, marking an uplift of over 40%.”

At the same time, tough market conditions for home builders such as rising construction and finance costs were beginning to stabilise, according to Simonds Homes chief executive David McKeown.

“Now a couple of years on from Covid, we’re pleased to see productivity return to a more stable level and this is reflected in the increase of residential homes starting onsite,” Mr McKeown said.

“We’re seeing build times and productivity continue to improve as the supply chain challenges ease and our industry moves past peak construction.”

All eyes on interest rates

At a time of higher interest rates, the top priority for consumers was affordability, both builders agreed.

Mr Duggan said the surge in inquiries they had seen this year had been largely driven by first-home buyers.

“It’s a promising indicator of growing confidence among potential buyers, especially in the entry-level market segment,” he said. “However, customers still are looking to build confidence in their financing capacity and this is why well forecast movements in interest rates is critical.”

The Metricon boss said a clearer stance from the Reserve Bank of Australia on whether there were any further rate hikes was crucial to customer confidence.

Market experts expect interest rates to remain on hold, with potential cuts later this year or next year, however the RBA hasn’t ruled out future rate hikes.

“Anticipating this clarity, we foresee a potential spike in figures for the next quarter,” Mr Duggan said.

“We advocate for a measured approach and well-forecast movements in interest rates to avoid abrupt market fluctuations, ensuring a smoother transition for the new housing construction sector and maintaining a consistent growth trajectory.”

While Metricon, Simonds and other builders remain optimistic on the outlook for home building, industry groups warn that we’re still not building homes fast enough.

Urban Development Institute of Australia national president Col Dutton said Australia wasn’t on track to meet the national target of building 1.2 million new homes by mid-2029.

“In order for us to hit the housing targets we need around 37,800 house commencements nationally every quarter and we are now sitting at only 23,900, that means we are undershooting by 37% on housing,” Mr Dutton said.

“We also need around 22,200 multi-unit commencements every quarter and we are under this volume by 36%.

“The marginal increases revealed in today’s data are hiding a disaster not only for the industry but importantly for the people of Australia desperate to get onto the property ladder if we cannot stimulate new housing supply.”

Master Builders chief economist Shane Garrett said the mismatch between the supply of new homes to the rental market and demand for rental accommodation was particularly worrying.

“Rental inflation continues to accelerate at a time when price pressures across the rest of the economy have been abating,” Mr Garrett said.

Advertised rental prices have continued to increase at a fast pace, with median rental prices up 3.4% nationally over the March 2024 quarter to $600 per week, according to PropTrack.