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Competing Influences on the Residential Building Outlook
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Macromonitor is currently finalising the forecasts for our new report, Australian Construction Outlook - Residential Building, due to be published in May.
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This note will highlight the two major, and conflicting, factors that will drive the residential building market over the next two years:
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- The big positive boost from the HomeBuilder program, and
- The dramatic reduction in overseas migration.
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At the current time, the positive impact of HomeBuilder, combined with other government incentives and record low interest rates, is driving a mini-boom in detached house building. Multi-dwelling residential, however, continues to fall. Theses trends are shown in the charts below.
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The boost in house building, according to our estimates, is due to a large rise in demand from both first home buyers and change-over buyers.
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The end result is likely to be total house approvals in FY2021 of 135,000, up from just 105,000 in FY2020. Housing starts are likely to climb just above 130,000 in FY2021, up from 102,000 in FY2020. Multi-dwelling approvals are continuing to fall however.
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The critical time for the house building cycle will be once the positive boost from HomeBuilder starts to diminish. Applications closed on April 14, but the time period allowed for commencement of work was extended by 12 months, which means some dwellings might not be started until September quarter 2022. The reality, however, is that the largest boost to starts will be during a period from December quarter 2020 to December quarter 2021.
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In terms of houses approved (rather than started), the numbers will start declining fairly soon. Our estimates of the number of grants and the number of approvals is shown below.
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And as the number of HomeBuilder-related approvals, and then starts, begin dropping, the second of our major influences - lower migration - will play a key role in determining how far activity falls.
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It is possible that the timing could pan out in a somewhat fortuitous way, with net migration inflows surging back just as the boost from HomeBuilder begins to wane. But it seems much more likely that there will be a gap, between the fall in HomeBuilder projects and the rise in migration.
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The first-pass of our projections of net overseas migration, which will appear in our forthcoming report, are shown below.
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This chart shows the net inflow of people into Australia each quarter. We can see that this had gone from an average of around 60,000 people per quarter prior to the pandemic, to a negative net inflow (a net outflow) of -35,000 by the September quarter 2020.
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It appears that this inflow of people will be quite slow to rebuild, hopefully returning to relatively normal levels by mid-2023. The implication of this is that there will be a sizeable gap in demand over the next two years. While building activity in FY2022 is likely to still be benefitting, to some extent, from the current surge in HomeBuilder grants and approvals of detached houses, FY2023 is shaping up as a lean year, with a large decline in housing starts expected.
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Our final forecasts for approvals, starts and value of work done, by state and territory, will all be available in the new edition of our report, Australian Construction Outlook - Residential Building, due to be published in May.
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Please see our website for more details about this report.
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Our most recent reports:
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Australian Construction Outlook - Utilities
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This report highlights the main drivers of the imminent upturn in utilities construction – strong focus towards renewable energy investment, additional spending on the NBN and a recovery on the construction of gas pipelines
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Residential Building and Transport Infrastructure Key Drivers of Strength
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Residential building and transport infrastructure construction, key drivers of strength in the construction industry outlook Despite the events of 2020, our forecasts for total construction activity in the short term are not vastly different to what they were a year ago. But this is not to suggest that the pandemic was of little consequence; indeed, there were some sizeable negative …
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Australian Road and Bridge Works
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This report examines the strength and composition of the current upturn, and determines the likely timing of the peak, and subsequent decline.
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Australian Construction Outlook - Transport Infrastructure
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This report provides a detailed picture of the imminent upturn in infrastructure construction, including the timing of major projects, key drivers, and the expected timing of the peak and next downturn.
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Australian Construction Outlook - Non-Residential Building
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This report examines the current downturn underway in the non-residential building sector, describes its causes and forecasts the timing of the coming recovery, by sector and state.
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