HIA forecasts new home building to fall in half
20 May 2020, Written by Business News Australia
A recent national report from the Housing Industry Association (HIA) forecasts half a million jobs in the construction industry are at risk, with the market set to fall to a level lower than the 1990's recession in December this year.
HIA managing director Graham Wolfe says while the industry worked on close to 200,000 new homes in FY19, in FY21 that number could fall to just 112,000.
"The shock to the economy from the halting of overseas migration, the absence of student arrivals and uncertainty over the domestic economy will see the market at a lower point in December 2020, than it was during the 1990's recession," says Wolfe.
"It will then continue to decline though 2021, even with the return of overseas students and migration.
"This shock will reverberate through the residential building industry, up and down the supply chain. Employment in the sector is not expected to recover within the next two years."
He says the loss of international students and migration creates a temporary imbalance in demand for rental accommodation, and highlights the past 20 years of economic growth in Australia have been underscored by stable population growth.
"The 625,000 overseas students enrolled in Australian education institutions equates to demand for the past two years of apartment construction. It is not clear how many of these left in March or how many will return," says Wolfe.
"The nature of this shock requires significant and ongoing support from policymakers in Australia and amongst our trading partners. The risk that insufficient support will produce a decade of deflation, depression and human hardship, is present."
"This means that of all the concerns facing government right now, debt should not be at the top of the list."
Wolfe notes JobKeeper plays a very important role for the sector, adding the building industry has been fortunate to continue operating.
However, he claims many small builders will not be eligible as the sector is set to be hit most significantly from September 2020 when the majority of projects under construction are completed.
"Restarting the economy and allowing students to return are also necessary steps to a full recovery," he says.
"Drawing forward housing demand can also play a role in alleviating the emerging shock to new home construction and the wider economy. Traditionally, Australia has done this through empowering consumers to build new homes.
"With the caveat that there is a high degree of uncertainty around the outlook, the disruption to migration and the elevated rate of unemployment will weigh heavily on demand for residential building beyond 2020."
He says dwelling starts in FY20 are set to be down by 18.3 per cent year-on-year, and they are forecast to decline by a further 30.5 per cent in FY21.
"If this transpires, the commencement of new homes will have fallen nearly 43 per cent from last year, to next," he says.
The association has also put out forecasts specific to NSW and WA, with the former set to have a more pronounced shock than the national average.
HIA regional director David Bare says new home building in NSW is set to drop 27.5 per cent this financial year, followed by a further 34.1 per cent decline in FY21. This would equate to more than a 50 per cent drop over the course of two years.
"New South Wales was already in a vulnerable position, with the housing market cooling over the last few years and a significant amount of apartment supply still to come online," says Bare.
"The further shock to housing demand from the loss of foreign students, tourists and migrants - who are particularly valuable to the state - is a particularly worrying development."
In contrast the expected impacts in WA are less severe, although they are still in a significantly downward direction. The HIA is projecting a 14 per cent decline in new house building in FY, followed by a decline of 27 per cent in FY21.
"If nothing is urgently done, Western Australia is forecast to have just 9,730 home building commencements in 2020-21, down by nearly 40 per cent from last year, to next," says HIA WA executive director Cath Hart.
"A downturn in home building of this magnitude would lead to job losses, the exit of businesses from the WA market plus knock-on economic impacts including reduced spending across the economy and lower employment in manufacturing and supply industries."
The launch of the WA forecast coincides with a State Government announcement for major reforms to simplify planning for significant, job-creating projects for the next 18 months.
The WA Government defines a significant development as:
But the HIA highlights the proposals to streamline approvals also extend to much-needed local planning exemptions for smaller, uncontroversial residential renovations and works.
"The expansion and simplification of the Residential Design Codes should be prioritised - the residential building industry and their customers face average delays of 75 days as well as associated costs when required to lodge a Development Application for a residential home," says Hart.
"Expanding planning exemptions for residential projects like carports, patios, small renovations and additions is just a common sense approach.
"This is a large body of generational planning reform that cuts red tape and supports businesses and trades across the industry."
Updated at 4:06pm AEST on 20 May 2020.
Author: Business News Australia