Australia may struggle to deliver upon its long-term targets for increasing housing supply, new data suggests.

Master Builders Australia has released its five-year forecasts for dwelling commencements across Australia.

According to the data, the number of starts is expected to fall by 18.3 percent over the current financial year from 207,501 in 2021/22 to 169,630 in 2022/23.

Beyond this, commencement numbers will rebound in 2023/24 but are expected to remain below 200,0000 until at least 2026/27.

The latest forecasts come amid growing concerns that the downturn in new home construction may be more severe compared with what was previously expected.

Announcing the latest 0.25 percent rise in official interest rates on Tuesday – the ninth consecutive increase since the latest cycle of monetary policy tightening began in May – the Reserve Bank of Australia indicated that further rate rises may be necessary in coming months in order to tame inflation.

From a housing industry perspective, the rate increases are expected to result drive a significant downturn in residential construction activity.

Already, the number of loans made to owner occupiers to either buy or build new homes has fallen to its lowest level in more than ten years.

Going forward, building approvals and construction lending are expected to fall further over the coming year as the full impact of rate increases flows through.

The data also comes at a challenging time for builders who are struggling with ongoing cost and supply chain pressures (through these are mostly easing) and a shortage of skilled workers amid record levels of building industry employment.

Longer term, the forecasts point to challenges in meeting Australia’s housing supply targets.

In the 2022/23 budget, Treasurer Jim Chalmers unveiled an agreement with state and local governments under which the nation will aim to deliver one million new homes over the five years commencing from 2024 – an average of 200,000 homes per year.

According to the new forecasts, however, commencement numbers will likely fall short of that rate until at least 2026/27 (refer chart).

The forecasts also come as Master Builders has released its blueprint for actions which it says are needed to address long-term challenges in housing supply and affordability.

All up, the blueprint calls for 42 action points from state, local and Commonwealth governments across five areas.

These include unlocking new housing supply, supporting the construction workforce, building resilient supply chains and minimising costs, reducing the regulatory burden on industry and reforming tax settings to support housing investment and productivity.

Speaking about current industry conditions, Master Builders Australia chief executive officer Denita Wawn says builders are facing challenges.

“The current environment is a difficult one for the industry marked by rising interest rates, robust cost pressures and labour shortages,” Wawn said.

“Despite this, the total volume of construction activity grew modestly (+1.5 per cent) to $215.1 billion during 2021–22.

“Whilst detached housing and renovations are stable or steadily growing off the back of the COVID stimulus boom, medium to high density remains hardest hit. This segment is more sensitive to interest rate fluctuations and is still recovering from the absence of inward migration over the past three years. Even before the pandemic, higher density dwellings were in decline.

“The challenge will be to make sure that we put downward pressure on building and construction costs to increase output.

“At present these challenges relate to supply of housing, workforce shortages – particularly key trades, bottlenecks in the market for key building materials and products, and increased costs from regulatory changes.”

Speaking of the longer-term supply situation, Wawn said the importance of action should not be underestimated.

“The dream of owning and investing in housing is underpinned by a fair and equitable desire to improve social, economic and productivity benefits for the country. But in the current climate of economic uncertainty many are seeing this aspiration become too far out of reach with flow on effects across the economy,” she said.

“Struggles around housing affordability have persisted over many decades but with state, territory and federal governments committed to addressing the challenge, this key policy area needs to be at the forefront.

“While this represents a challenge, it also provides a real opportunity for bold reform to be advanced and for business and the communities in which they operate to be unshackled.

“The Federal Government has announced an ambitious plan for housing which is supported by Master Builders, and we will work closely with them to ensure the most effective levers are pulled and are practically implementable by the industry.

“To achieve better housing affordability in the future, changes need to be made to the way we do things, now and over the long-term.”

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