The market for new home construction in regional Australia will continue to boom in coming years, the latest forecast suggests.

Releasing its latest research briefing, BIS Oxford Economics says it expects the number of new house commencements in regional Australia to rise by 35 percent in 2020/21 to come in at 45,000 – the highest number of regional house commencements on record.

Beyond that, whilst commencements will dip by 6 percent in 2021/22 as the pull-forward effect from HomeBuilder subsides, the number of starts will subsequently rise by a further nine percent in 2022/23.

As a result, activity will remain at levels which are well above those experienced in recent years (see chart).

In its report, BIS said regional markets are being driven by several factors:

  • With overseas migration being concentrated toward major cities, regional economies have been less impacted by international border closures compared with metropolitan centres. Indeed, the past year has seen net internal migration back toward regional areas amid a shift in preferences toward more space and lifestyle focused locations as the normalisation of working from home decreases the need to be located close to the office
  • Regional areas have been the primary beneficiaries of government stimulus programs. Because of tight program timeframes specified within its eligibility criteria, activity associated with the Commonwealth HomeBuilder program has been primary directed toward lower density forms of housing which are more prevalent in outer urban and regional areas. This is significant as more than 99,000 applications have been submitted through the program for grants to build new homes along with 22,000 grants to renovate existing homes. Beyond that, several state-based incentives for first-home buyers focus on regional areas. Victoria, for example, offers a $20,0000 grant for first home buyers to construct new homes in regional localities.
  • Despite challenges in areas such as tourism, regional economies and labour markets are holding up well. Over the year to March, job vacancies in regional areas were up 61 percent. This compares to a 28 percent increase in vacancies in metropolitan areas.
  • The pressure from internal migration has caused rental markets in regional areas to tighten. Combined with low interest rates, this is likely to hasten the return of investor demand. Particularly hard hit have been areas where regional centres are located and which are within reach of major capitals. These include Bunbury, the Gold Coast, Wollongong, Geelong, Ballarat and the Sunshine Coast.
  • Rising house prices in regional areas over the past twelve months have highlighted challenges in the availability of regional housing stock and underscored the need to build more stock.

BIS Oxford Economics Economist Maree Kilroy said the market for regional house construction will be strong nationwide.

“The core fundamentals currently underpinning strong regional housing demand are expected to hold, both for commuter cities and more remote centres,” Kilroy said.

“The normalisation of working from home, strengthening economic conditions in regional Australia, and longevity in preference shifts, are set to sustain higher net internal migration flows to regional Australia.

“Despite the weight of oncoming housing supply associated with the HomeBuilder program, we expect regional markets on average to remain undersupplied. This will provide fertile ground for a return to growth in regional dwelling construction post the FY2022 lull.”

Whilst the boom is beneficial overall, the ongoing strength in activity will place pressure on the availability of trades and materials.

In its latest trades report, for instance, the Housing Industry Association indicated that there was a shortage of trades for all categories on which it reported.

The shortage was particularly acute across regional areas, HIA said.