Detached housing starts to hit record numbers: HIA

The Housing Industry Association’s (HIA) National Economic and Industry Outlook Report Autumn Edition 2021 has revealed that the number of detached housing commencements will reach a record high of 146,860 in the 12 months to September 2021, representing a 20.3 per cent increase from the peak of the previous boom in 2018.

The report stated that the number of starts in the June and September quarters would remain at near-record peaks of 37,780 and 36,810 respectively, before declining rapidly below 25,000 within a year.

It also said that this would produce a record number of starts in the 2020-21 financial year of 137,170, up 34.2 per cent on the 2019-20 financial year. However, it noted that commencements would begin to slow from December 2021, but this period would still see 121,000 starts in 2021-22, which would make it the third-strongest year on record.

According to HIA data, detached house starts jumped by 26.8 per cent in the final quarter of 2020, from 27,120 to 34,390, a record number of commencements for a quarter.

The report said these figures reflected the “urgency” to begin construction within six months of signing a contract under the federal government’s HomeBuilder program, which it said produced an annual increase of 8.0 per cent between 2019 and 2020 to 113,310 detached starts in the 2020 calendar year.

The HIA said that the March 2021 quarter is set to break the record set in the final quarter last year, with 37,880 commencements forecast for the March 2021 quarter.

The report said: “This peak in starts in the March 2021 quarter will hold the record of the most detached starts for many years to come, if not the decade.

“Starts had been anticipated to peak in the June quarter however, the extension of time permitted under the HomeBuilder program announced in April, alleviates some of this pressure and ensures a more orderly flow of new housing starts, albeit a modest reduction.”

The report attributed the strong detached housing starts to the HomeBuilder scheme and its role in increasing confidence in the housing market, as well as record-low interest rates, and a shift in population away from inner-city areas to regional areas and detached housing, adding that the shift to detached housing has been a global trend driven by the COVID-19 crisis.

Demand to test supply capacity

However, the report also warned that while these factors would result in a peak for starts above previous cycles, it would also drive demand up for detached homes beyond the capacity of the market to supply this demand.

“The constraints on the housing market to meet this level of starts is not limited by demand, but by the limited supply of land, labour and materials,” the report said.

“One or all three of these factors is likely to restrict the supply of detached housing starts in 2021 across each jurisdiction.”

Multi-units starts lag detached houses

In contrast, the HIA report said that multi-units are predicted to decline to 61,360 in 2020-21, an 11.6 per cent decline on 2019-20.

While multi-unit commencements improved in the December 2020 quarter from 15,750 to 16,720, the report said this reflected a number of projects commencing as travel restrictions eased rather than a recovery.

Multi-unit commencements are forecast to decline by a further 14.5 per cent in the March 2021 quarter to just under 14,300, the report said.

Future growth depends on migration levels

Commenting on the record activity in detached dwelling starts, HIA economist Angela Lillicrap said that the large volume of work would ensure that the construction industry remains activity through until at least the second half of 2022.

However, she said that this level of activity would not occur again for many years, if not decades, because of the combination of factors contributing to the current boom.

“The key challenge for the industry has shifted from a slump in demand this time last year, to having sufficient supply of materials, labour and land to satisfy this demand,” Ms Lillicrap said.

“The extension of HomeBuilder’s commencement deadline will help limit the impact of constraints imposed by land, labour and materials and ensure the elevated volume of detached homes will be sustained for longer.”

She also said that if overseas migration returns sooner or faster than anticipated, this would curtail a trough of 93,500 new housing starts in 2023.

“Equally, if the restrictions on skilled migration continue into 2022 the depth of the emerging slowdown in new detached starts will be exacerbated,” she said.

“The return to stable and certain population growth is central to stable economic growth.”

Federal Assistant Treasurer and Minister for Housing Michael Sukkar also spoke of the HIA figures, stating that the HomeBuilder program played a role in supporting the housing industry and the economy during the COVID-19 crisis.

“These results speak for themselves,” he said.

“HomeBuilder not only saved construction jobs during the worst of the COVID-19 recession, it has helped underpin Australia’s strong economic recovery.”

Lending restrictions’ impact would be minimal

The report also said that while there have been suggestions by commentators for regulators to impose lending restrictions on lenders, previous restrictions in 2015 and 2017 targeted investors and forced them from the market.

However, it said that investors are currently not a large part of the market, which it said has been dominated by owner-occupiers, including first home buyers.

As such, it stated that macroprudential measures, if imposed, would have much less impact on the market than in previous years, because “lending quality has improved since then”.

“Forcing investors from the market in would have had a limited, if any, impact on house price growth from the middle of 2020 to March 2021,” the report said.

“This may not hold true for future house price growth.”

Find out more about the top property and home buying trends in your local area at the Better Business Summit 2021. Places are limited so make sure you secure your place at the five-state event asap!

[Related: Property listings slip, but still running high: REA Group]

Malavika Santhebennur is the features editor on the mortgages titles at Momentum Media.

Before joining the team in 2019, Malavika held roles with Money Management and Benchmark Media. She has been writing about financial services for the past six years.