Australia’s largest home building companies are taking a larger slice of the market for new home construction even as the overall size of the new home building market has contracted, a new report shows.

The Housing Industry Association (HIA) has released its HIA-COLORBOND® steel Housing 100 Report.

The report ranks the top 100 home building companies across Australia based on the number of dwellings commenced over the past financial year.

According to the report, Victorian detached home builder Metricon Homes just held on to its title as Australia’s largest home builder for the ninth year running.

All up, Metricon broke ground on 3,894 new dwellings in 2023/24. This is well down on its 4,693 starts that were achieved in 2022/2023. Metricon’s decline in starts is attributable to its exposure to softer market conditions in Victoria, where two-thirds of its business by commencement numbers is based.

Second was Perth based home building company ABN Group, which almost grabbed the number one mantle off Metricon after increasing its commencement numbers from 3,506 to 3,881 on the back of stronger housing market conditions in Western Australia.

The top five spots were rounded out by Meriton Apartments, Home Group and Blueprint Homes and NBX Building Group.

The report also revealed that larger builders have increased their market share even as the overall size of the housing construction market has slowed in response to higher interest rates.

All up, the HIA 100 increased their share of new dwelling construction starts from 33 percent in 2022/23 to 38 percent in 2023/24.

This happened even as the number of dwellings commenced by the top 100 contracted from 59,981 in 2022/23 to 57,716 in 2023/24.

The result is that smaller builders have ceded market share even as the size of the overall market has shrunk.

Asked about likely reasons for the shift in favour of larger market players, HIA Chief Economist Tim Reardon said that larger builders have been faster to adjust to more competitive pricing as pressures on home building capacity have eased.

Reardon points out that the share of new housing starts taken by the top 100 has remained consistently between 31 and 39 percent of new overall dwelling commencements across the 35 years that HIA has published its report.

In addition, he points out that market share has historically tilted slightly more favourably toward larger builders during times of contraction in new home building activity but reverted back toward smaller players as a recovery gets underway.

“I think what’s transpired is that the volume builders were very quick to reduce their price to market,” Reardon said.

“So to go back a bit. As we have seen the time taken to build a home come down and builders gain confidence that they can complete a home within a set time frame, they (builders) have reduced their contract price.

“And I think because of the volume that volume builders build, they have seen that cycle sooner than the small guys. Small guys doing two or three homes a year don’t see that reduction or easing in skilled labour or access to materials as quickly as what the volume builders do.

So I think that they (volume builders) have been quicker at chasing the market in the downswing than what the small builders have been.

“In addition, typically what we see is that the volume builders gain market share on the downswing and small builders gain on the upswing.”

Going forward, Reardon expects both very large and very small builders to increase market share over the longer term at the expense of medium sized firms.

“I think what we’ll find is that those builders in the top 10 or top 20 will probably gain market share out of this pandemic shock,” Reardon said.

“We saw something similar out of the GFC and as we see those very large builders increase their level of vertical integration to improve their efficiency, that they will gain market share over the long term.

“And what that will mean is that for the small builders as they’re doing fewer than 30 homes, there will be an even larger share of the market. The bit that’s going to be squeezed out will be those builders that are the medium volume builders that are in that sort of 50 to 100 on the (HIA 100) list.”

 

Home Building to Begin a Mild Upswing

During his presentation, Reardon said that overall market conditions are set to improve in 2024/25.

Initially, the improvement will be concentrated around Queensland, Western Australia and South Australia.

More sluggish conditions are expected to remain in New South Wales and Victoria before the recovery eventually spreads to these states also.

“Market confidence is returning to the new home market as interest rates remained on hold for the tenth consecutive month,” Reardon said.

“Low levels of unemployment and strong population growth have driven ongoing demand for new homes, despite the increase in the cost of borrowing and a decline in household consumption. The recovery in market confidence isn’t evenly distributed across each jurisdiction, and this has had an impact on the results of this year’s Housing 100.

“Leading indicators suggest that the volume of home building activity is set to increase in the second half of 2024 and into 2025.

“Increasingly the outlook for home building is dominated by local factors such as the price of land and state government taxes. For this reason, a recovery in building activity in New South Wales appears set to lag all other jurisdictions.

“At the other end of the spectrum, Queensland, Western Australia and South Australia appear set to see an increase in building activity. Population growth through the pandemic and then a return of overseas migration have seen a stabilisation of building levels in 2023/24 similar to that seen immediately prior to the pandemic.

“This bodes well for a more stable return to building activity in future years.”

 

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