Dwelling commencement numbers across Australia have fallen to their lowest levels in eleven years as rising interest rates have impacted new housing demand, the latest data shows.
On a seasonally adjusted basis, new Building Activity data released last week by the Australian Bureau of Statistics shows that the number of new homes and apartments for which construction commenced fell by 11.8 percent to go from 46,176 in the March quarter to 40,720 in the June quarter.
This represents the lowest level of commencements since the June quarter of 2012.
Whilst much of the decline was due to a 20.3 percent fall in the statistically volatile multi-unit sector (units, townhouses, apartments etc.), commencements in the more statistically stable detached house sector also dropped back by 6.7 percent to reach 25,836 – the lowest level since the September quarter 2013.
On a financial year basis, the number of commencements came in at 173,336 across 2022/23.
This is well down from the 202,642 and 206,251 starts that were recorded during the Homebuilder boom of 2020/21 and 2021/22 respectively and represents a modest level of building compared with recent historic standards.
As the volume of new housing projects has eased, the pipeline of work appears to be easing slightly but remains at elevated levels by historic standards.
Across Australia, the number of dwelling units under construction eased back from 241,091 as at March 31 to 237,779 as at June 30.
This is due to a contraction in the number of detached houses under construction from a record of 105,019 as at March 31 to 101,820 as at June 30.
Despite the large pipeline of work, however, dwelling completion numbers fell from 45,054 in the March quarter (seasonally adjusted) to only 41,669 in the June quarter – the lowest level on record for nine years.
Although the decline was driven by a fall in multi-unit completions, the number of detached home completions (27,183 – seasonally adjusted) remains modest by recent historic standards.
In light of the near-record volume of work in the detached house segment, the relatively modest number of completions indicates that the industry was struggling to work its way through the pipeline of work notwithstanding the slowing in new projects coming in.
Furthermore, the latest completion numbers highlight the degree of challenge associated with meeting national housing targets.
Over the 2022/23 financial year, the number of dwellings completed came in at 174,396.
By comparison, as many as 240,000 completions per will be needed if the national housing target of 1.2 million homes over the five years from 2023/24 is to be achieved.
Over the five years to June 2023, construction was completed on 934,162 homes – again implying that completion of 1.2 million homes over the five years from 2023/24 will be a challenge.
Largely speaking, the decline in housing starts is being driven by the Reserve Bank of Australia’s cycle of monetary policy tightening which has seen official interest rates rise from 0.1 percent last April to its current rate of 4.1 percent.
Not surprisingly, this has affected both the capacity and willingness of households and residential investors to purchase new homes along with the feasibility of new projects for developers.
To be sure, the data referred to above relates to the June quarter and is therefore several months old despite being published only last week.
Nevertheless, more recent monthly data relating to building approvals and construction lending indicates that the volume of new residential projects which are coming in remains at extremely low levels despite having stabilised over recent months.
This indicates that dwelling commencement numbers are likely to remain low over the near-term.
Housing Industry Association Chief Economist Tim Reardon cautioned that some upward revisions may be likely to be made to the June quarter commencement numbers over coming quarters in line with recent data revisions.
Accordingly, it is possible that June quarter commencement numbers may in fact end up being 1,000 to 1,500 higher compared with those provided in the latest data release.
Even at this level, however, numbers would still be extremely low by historic standards.
Going forward, Reardon expects the outlook for new home construction to vary according to different housing sectors, with the number of detached home starts expected to fall but the outlook appearing to be more promising in the multi-unit sector.
He cautions, however, that meeting government target of 1.2 million homes over the five years from 2023/24 may be challenging.
As for the modest number of completions, Reardon says this is interesting in light of the fact that material and labour pressures have eased. He expects completion numbers to rise over coming quarters.
“As for detached starts, we expect to see a trough in September quarter of 2024, at their lowest level since 2012,” Reardon said.
“Then, (we expect) a slow recovery over the following years.
“Multi-units, however, are starting to stabiles at average levels, but well up from the extraordinary low volume of recent years. This is because investors can see through the current rate cycle and are anticipating that the strong population growth will see low rental vacancies for some years yet.
“Unfortunately, unless we allow overseas investors back into the market, we won’t see a return to the peak of apartment building in 2016/18. This record volume of apartments will be necessary to achieve the government’s goal of 1.2 million homes.”