Dwelling commencements fall to decade low

Just 37,116 dwellings were commenced in the September quarter, the weakest figure for 10 years, new figures from the Australian Bureau of Statistics (ABS) have shown.

In seasonally adjusted terms, total dwelling commencements fell 10.4 per cent to 37,116 dwellings, with new private sector houses dropping 9.7 per cent to 22,741 dwellings. This followed on from a fall of 6.5 per cent in the June quarter and means that commencements were down 21.9 per cent through the year.

Other private sector residential commencements fell 11.2 per cent to 13,485 dwellings in the three months ended September 2023. Similarly, dwellings under construction fell 3.1 per cent to 231,387 dwellings in the September quarter. New houses accounted for 97,120 of the dwellings under construction.

However, residential work done increased by 1.4 per cent to be 4.8 per cent higher through the year, despite falling approvals and commencements.

Overall, the value of total building work done fell 0.1 per cent to $34.3 billion, led by lower non‑residential building.

Noting the figures, the Housing Industry Association (HIA) warned that Australia is not commencing enough housing to meet the government’s 1.2 million target.

HIA senior economist Tom Devitt stated: “This data reveals there were 103,707 detached houses that commenced construction in the 12 months to September 2023, down by 17.0 per cent on the 124,940 commenced in the previous 12-month period.

“This points to a slow start to National Cabinet’s ambition to build 1.2 million homes over the next five years starting mid-2024.

“Since the RBA’s first cash rate increase in May 2022, sales of new homes have tumbled. A number of earlier projects are also being cancelled, with banks withdrawing finance in the face of soaring building costs and shrinking home buyer borrowing power.

“This lack of new work entering the construction pipeline is expected to produce a trough in new house commencements in 2024, when Australia will start construction on just 95,400 new houses, the weakest year in over a decade.

“As fewer new projects begin construction, the pipeline of work that Australia’s home builders have under construction is expected to shrink rapidly this year.

“Meeting National Cabinet’s target will be largely dependent on the delivery of adequate private housing across the housing continuum. This will also have the biggest impact on the cost of housing and rental availability.

“Holding all levels of government to account for improving planning regimes, reducing red tape, and supporting the development of appropriate infrastructure and a skilled construction workforce, must be a priority this year.”

Similarly, Harry Ottley from the Commonwealth Bank of Australia’s economics team noted that “the housing shortage in Australia means that underlying demand for new dwellings is high”.

“But a variety of forces are working to subdue activity. Higher borrowing costs, elevated inflation for new dwellings, poor consumer sentiment, uncertainty around the path of the cash rate as well as concerns about the health of the construction sector are all weighing on near term activity,” he said.

Mr Ottley flagged that “a large backlog of work to be done remains” and “the normally very tight relationship between starts and completions has broken down due to well-documented capacity constraints and as profitability issues impacting the construction industry during the pandemic years”.

“This has caused delays, especially for detached homes being completed after the boom in approvals/commencements in 2020–21, driven by lower interest rates and stimulatory government policy. Further, capacity constraints have been made more acute due to competition from elevated level of public investment,” he said.

[Related: Dwelling commencements fell in June quarter: ABS]