Australia is set to experience its worst year for detached home building since 2012, new forecasts suggest.

Released by Housing Industry Association, the Outlook Report includes  updated forecasts for new home building and renovations activity nationally and for each of the eight states and territories.

According to the report, the number of detached home commencements is expected to drop to less than 100,000 this year before bottoming out at 96,3000 in 2024.

At this level, detached home commencement numbers will be lower than at any other time since 2012.

But multi-unit starts will pick up after a difficult year in 2022 on the back of returning migrants and students as well as affordability challenges in the detached market (see chart).

Speaking of the detached market, Housing Industry Association chief economist Tim Reardon said the downturn is being driven by rising interest rates.

“The number of detached houses commencing construction is set to decline this year and next to its lowest level since 2012,” Reardon said.

“The 2022 cash rate increases were sufficient to bring this building boom to an end and further increases in 2023 will accelerate this downturn.

“There was a large volume of work in the pipeline when rates started to rise in May 2022, and there remains a record number of homes under construction, but this will shrink quickly as market confidence continues to fade.”

Reardon has also launched a stinging criticism of the Reserve Bank, accusing the RBA of overshooting on interest rate hikes.

“It is unfortunate that the RBA appears set to repeat the cycle the building industry experienced after the GFC. Following an initial cut to rates, the RBA then increased rates quickly, bringing the building industry to a stall, before being forced to cut rates again to avoid adverse impacts on the wider economy.

“It is also unfortunate that higher rates will further impair the ability of the market to respond to the acute shortage of housing stock.

“One policy tool at the disposal of government is to ease the barriers put in place in recent years that restrict first home buyer access to a mortgage. Over a decade of macro prudential restrictions have seen borrowing for those with less than a 20 per cent deposit become increasingly expensive. This inevitably leads to banks increasingly lending to those that already own a home.

“Easing the barriers to home ownership need not undermine the efforts of the RBA or the government to reduce inflationary pressures.”