Dwelling commencements throughout Australia will drop by 40 percent over three years as what were already slowing conditions are now being exacerbated by COVID, the latest forecast suggests.

Releasing its long-range state and national outlook, Housing Industry Association says it expects the number of commencements on new homes and apartments to drop from previous sky-high levels of 231,201 in 2018/19 to 173,000 in 2019/20, 139,700 in 2020/21 and 133,010 by 2021/22.

HIA Chief Economist Tim Reardon said the decline is being driven by a structural decline in population growth which had already taken hold prior to COVID along with the further contraction in migration which has occurred as a result of COVID.

“Prior to COVID-19, population growth had already fallen well below expectations as overseas migration and the natural rate of population growth fell,” Reardon said.

“Adding to this structural decline in population growth, the contraction in migration due to COVID-19, will further impede building activity over the decade.”

According to Reardon, the biggest impact from COVID will be felt in the multi-unit sector, which was already slowing from its peak of 2018/19 before the coronavirus outbreak.

The detached home market, by contrast, will experience a more moderate contraction heading into 2021-22 and will reach a trough in the September 2021 quarter as the HomeBuilder grant draws commencements forward to the March quarter of that year.

Longer term, Reardon says a slower rate of population growth will impact new home building demand.

Whereas HIA had previously forecast that housing starts would be at 190,000 in 2030, it now expects that number to be only 172,000.

Along with population growth, Reardon says access to finance remains a barrier to housing market recovery.

Tighter lending requirements, he says, mean it is more difficult now for a first home buyer to secure finance with a deposit of 10 percent compared with what was the case during the trough in the GFC in 2009.

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