Victoria continues to lag other Australian states in terms of the national recovery in new home building activity, an industry breakfast has heard.

At a breakfast hosted in Melbourne by Housing Industry Association (HIA) on June 3, HIA Senior Economist Maurice Tapang provided an overview of the outlook for new home building activity across both Australia in general and in Victoria in particular.

From a national viewpoint, the new home building recovery is firmly entrenched.

Coming off the back of a substantial rise in 2024/25, national dwelling commencements are expected to have increased by 13 percent in the current financial year to come in at healthy levels of 202,548, according to HIA Forecasts.

By 2027/28, HIA expects the number of starts to reach 218,625.

Whilst the recovery was initially focused on detached housing, this is now being supported by a stronger pipeline of multi-residential projects (units, townhouses, apartments, etc.) (see chart).

In Victoria, however, commencement numbers remained flat at near-decade lows in 2024/25 and are forecast to do have done so again in 2025/26.

Going forward, HIA expects a modest improvement over the next two years led by the multi-unit sector (see chart).

Even so, the upturn will be smaller compared with that in other states, whilst the overall level of building will remain subdued.

(At a national level, the outlook for new home building activity is healthy. Image source: HIA Economics)

Speaking from a national perspective, Tapang said that demand for new housing is being supported by ongoing population growth and high levels of employment.

Activity was further supported last year as lower interest rates saw some buyers return to the market.

But he said that the performance and outlook across different states is ‘patchy and inconsistent’.

Thus far, much of the growth in detached housing has been concentrated in Queensland, South Australia and Western Australia.

More recently, there has been an upturn in multi-unit starts driven mostly by Sydney and Southeast Queensland.

Speaking of Victoria, Tapang said that the outlook remains subdued.

Over the next two years, the state is expected to experience only a modest upturn in multi-unit commencements and virtually no improvement in detached house starts (see chart).

Referring to leading indicators such as new home sales and building approvals, Tapang said that any signs of improvement in Victoria are ‘slow and patchy’.

This contrasts with the national situation, where forward-looking data has been more encouraging.

Furthermore, Tapang said that the home building sector in Victoria has been disappointing compared with previous expectations.

Two years ago, he expected the state to be breaking ground on around 38,000 new detached houses by now.

As things stand, however, HIA forecasts that detached house commencements will come in at only 33,852 in the current financial year and will remain at low levels over the next two years.

In fact, HIA has downgraded its Victorian expectations on account of the state election and weaker than expected approval numbers.

“Our forecast for 2026/27 for Victoria (in detached housing) is flat,” Tapang said.

“And our forecast for flats, units and apartments is relatively flatter than what we’ve got for other capital cities and other states …

“… We’re forecasting nationally 2026/27 to be somewhere about 122,000 detached housing starts and 88,000 multi-unit starts.

“(That’s) pretty much driven by everywhere but Victoria, because the outlook for Victoria is pretty flat.

“We’ve had two years of pretty slow growth in detached housing starts (in Victoria). 23/24 and 24/25 were relatively unchanged.

“We don’t expect much to change. In 26/27 as well, we’ve actually had to downgrade the outlook for Victoria detached housing starts – not just because of the state election, but because of some of the signals that we’re getting from approvals.

“If you had asked me two years ago where Victoria would be now, I would have said somewhere closer to 38,000 detached housing starts. And unfortunately, it will be a slow ride up for Victoria.”

(For Victoria, the home building market outlook is more subdued. Image: HIA Economics)

No confidence

Several factors may help to explain the subdued nature of Victoria’s home building market compared with that of other states.

First, there is interstate migration.

To be sure, all states and territories are experiencing overall population growth on account of net overseas migration.

Within Australia, however, the post-COVID period has seen significant interstate migration away from New South Wales and Victoria and toward Queensland, Western Australia and South Australia.

This trend continues. A chart displayed at the breakfast showed that NSW and Victoria continued to lose population to Queensland and Western Australia over the past two years.

Beyond this, property prices in Melbourne have remained flat over the past year even as the cost of construction continues to rise.

This makes building new homes comparatively less attractive for consumers as opposed to buying established dwellings and makes new project feasibility more challenging for developers.

It contrasts with the situation in Perth, Brisbane and Adelaide, where dwelling price growth (25.8 percent, 17.6 percent and 12.3 percent respectively over the year to May) is comfortably outpacing the rise in construction costs.

Speaking to Sourceable on the sidelines of the breakfast, Tapang attributed much of Victoria’s sluggish performance to subdued confidence levels.

“The main thing that I’m hearing on the ground is just that market uncertainty and just (low) consumer confidence in the state of Victoria,” Tapang said, asked specifically what lies behind Victoria’s subdued performance.

“It is quite interesting because from a land price perspective, you would think that Melbourne would start to pick up given its relative affordability (land prices in Brisbane and Perth have surged past Melbourne in recent years.)

“But right at the moment, the state election is pretty much weighing down on numbers for 2026.

“When you look at (new home) sales (in Victoria), sure they’ve picked up in April. But they’re nowhere where what we’re seeing say in Queensland, South Australia and Western Australia, which is pretty much the benchmark of growth at the moment.

“So back in the day, it used to be Victoria was accounting for about 35 percent if I’m not mistaken of detached housing approvals. Now, they’ve fallen pretty much as a share of the national market and it really boils down to confidence.

“I don’t think the rise in the cash rate will help increase that confidence either but I’m not saying that the market is collapsing in Victoria. It’s really more so that numbers aren’t picking up.

“Builders aren’t seeing the same volumes that they used to back in the 2010s when you were building about say closer to 40,000 starts (in detached housing each year) compared with the 35,000 we’ve got today.”

The breakfast was sponsored by event partners Origin, Next Level Elevators, the Building and Plumbing Commission, Dahlsens, e&s, HazardCo, Innova and HIA Insurance Services.

In addition to Tapang’s presentation, several representatives from the Building and Plumbing Commission gave an overview of the situation regarding new building reforms which are coming into effect in Victoria on July 1.

Enjoying Sourceable articles? Subscribe for Free and receive daily updates of all articles which are published on our site

Want to grow your sales, reach more new clients and expand your client base across Australia’s design and construction sector?

Advertise on Sourceable and have your business seen by the thousands of architects, engineers, builders/construction contractors, subcontractors/trade contractors, property developers and building industry suppliers who read our stories across the civil, commercial and residential construction sector