Australia’s detached house construction sector will have a ‘soft landing’ with activity remaining at elevated levels until at least 2023, the latest forecast indicates.

And strong activity will persist in home renovations.

Releasing its latest HIA Australian Outlook report, Housing Industry Association said it expected the overall number of dwelling starts to come in at 197,290 in calendar 2022 and 184,730 in 2023.

Whilst this is below the 231,290 starts which HIA believes will have taken place in 2021 when the final numbers come out in April, it represents a healthy level of activity by historic standards (prior to the apartment boom in the middle of last decade, housing starts of 160,000 per annum was considered a healthy level of activity.)

Leading the way is detached housing, where commencements are expected to ease from record levels of 141,150 in 2020/21 to come in at 132,420 in 2021/22 and 117,190 in 2022/23 before dropping back to normal levels of 100,210 in 2023/24.

Meanwhile, the value of investment in home renovations is set to reach record levels of $45.292 billion in 2021/22 before easing back to still elevated levels of $42.809 billion in 2022/23 and $40.817 billion in 2023/24.

HIA Chief Economist Tim Reardon said a super-cycle of activity will ensure that the industry continues to operate at capacity for now.

“The volume of detached home building and renovations activity has been exceptionally strong for the past 18 months,” Reardon said. “This was initially driven by HomeBuilder and is now being supported by strong employment conditions, low interest rates and accelerated household formation.”

“This has driven a ‘super cycle’ of housing activity across Australia that will ensure that the industry continues to operate at capacity through 2022. Detached home building activity remains well above historical peaks.”

Reardon says several factors will contribute to an easing of detached home building activity over the next two years.

An inevitable increase in interest rates will slow house price growth and reduce household borrowing power by making banks more reluctant to lend to finance new home construction.

Meanwhile, rising building costs will begin to impact demand for new homes as established house price growth slows and access to finance tightens.

Finally, slowing migration growth will become more evident as a source of softer demand.

Nevertheless, Reardon says the number of detached home commencements will not drop back to pre-covid levels until the end of 2023.

Apart from detached housing, HIA expects the number of commencements in multi-unit construction to continue to increase over the next two years but remain below pre-covid levels of activity.

Whilst activity in this sector is not immune from interest rate rises, Reardon says the volume of work will be boosted by a return of migration and affordability constraints in detached housing which will push some households into townhouse or apartment living.