THE latest National Housing Finance Investment Corporation (NHFIC) State of the Nation’s Housing 2022-23 report has confirmed builders’ concerns about achieving Australia’s housing needs.

Master Builders Australia CEO Denita Wawn said the report was more evidence "that we are falling well short of the 200,000 homes needed each year to keep up with demand and address housing affordability challenges".

“Rising interest rates and declining sales for new home construction is weakening the pipeline of new housing, which is compounded by a stronger than anticipated recovery in migration," Ms Wawn said.

“There is fragility and volatility in the industry at the moment that has been a consequence of businesses working predominantly with fixed price contracts that were set pre-COVID. 

“The industry has been relatively resilient over the last decade. Some of the insolvency data we are seeing coming through is a reflection of the challenges over the last 18 months, and we hope the worst is behind us. 

“But we are alert to the combination of rising inflation and interest rates, labour shortages and unnecessary government hurdles which are making it difficult for builders," MsWawn said.

“A strong building industry is the foundation of a strong economy. The inextricable ties between construction activity and the broader health of the economy are again on display in the current environment.

“To achieve better housing affordability and keep up with demand, changes need to be made to the way we do things, now and over the long term.

“The government needs to take the necessary steps to ensure interest rates do not need to rise any further and take some of the heavy lifting of our correction off mortgage holders and business owners. From here, there are no easy choices.

“There needs to be a conversation around fixed-price contracts and appropriate risk-sharing between banks, developers and builders,” Ms Wawn said.

Master Builders’ Delivering the housing needs for all Australians recommends policies around housing supply, workforce, supply chain risk and cost pressures, simplifying regulatory settings that support investment in housing and business productivity.

“Governments must lift the handbrake on the building and construction industry by bringing down the cost of doing business.

“We need around half a million new entrants into our industry by 2026 to ensure homes get built, and the broader construction ecosystem of infrastructure and commercial premises can be delivered.

“Governments need to look at what impact their regulations and policies have on the cost of building homes and on the cost of building social infrastructure; that includes industrial relations laws, the cost of planning and the need for more titled land.

“The Housing Accord is the start of this national coordination, but we can’t wait until 2024; action by states is needed now.

“There is no silver bullet; this will take a concerted effort by all levels of government working in collaboration with industry,” Ms Wawn said.

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THE Federal Government looks like falling “well short of their goal of building one million homes over five years” according to HIA chief economist Tim Reardon, reading from the new National Housing Finance and Investment Corporation (NHFIC) report.

NHFIC is the Housing Industry Association’s (HIA) peak housing advisory body, which released its State of the Nation Housing 2022-23 report this week. The report highlights that the under supply of housing is set to worsen as demand continues to out-pace supply.

“Every state and territory need to take action to attract more investment in the housing sector to improve the supply of new homes,” Mr Reardon said.

“The NHFIC report expects around 180,000 new households to form each year, but less than 150,000 new homes to commence construction each year for the next two years. 

“Over the decade, this will see an expected 79,300 shortfall in the supply of new homes,” he said.

“This will see the acute rental shortage worsening and unnecessarily high increases in home prices.

“The report also highlights that to meet the accelerated demand for new homes, there needs to be an increase in the number of apartments commencing construction.

“Commencements of apartments last year were 40 percent lower than at their peak in 2016,’ Mr Reardon said.

“The imposition of a range of punitive taxes on investors by state governments, combined with additional constraints through the FIRB (Foreign Investment Review Board) and diplomatic disputes, has seen investors withdraw from the market.

“At the same time, the cost of new apartments is set to increase in 2023 with new regulatory costs imposed through building regulations.

“These regulatory costs are in addition to the increased cost of labour and materials that increased rapidly over the last two years,” he said.

“The combination of increased costs and less investment has seen apartment construction slow well below what is needed in a typical year of population growth. But with migration expected to be at record levels in 2023, the shortage of housing will continue to deteriorate.

“The Australian Governments ‘Housing Australia’s Future Fund Bill 2023’, that was before Parliament last week, sets a pathway to improving this supply and demand imbalance,” Mr Reardon said.

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NEW HOME sales for the past three months are almost 47 percent lower than for the same period last year, according to the Housing Industry Association of Australia (HIA).

“Sales of new homes fell again in January, down by 12.8 percent for the month, leaving sales in the previous three months a remarkable 46.7 percent lower than in the previous year,” HIA’s chief economist, Tim Reardon said. The figures were drawn from the HIA New Home Sales report – a monthly survey of the largest volume home builders in the five largest states. The report is widely used as an indicator of future detached home construction.

For the three months to January 2023, compared with the same period the previous year, new home sales in New South Wales were down by 73.1 percent, followed by Queensland (-53.9%), Victoria (-41.6%), and Western Australia (-21.7%). South Australia had an increase of 2 percent

“Sales of new homes have stalled in recent months as the adverse impact of the RBA’s rate increases continue to erode market confidence,” Mr Reardon said. 

“There is no indication that the market has reached the bottom of this cycle with sales falling in all states. A further increase in the cash rate in February is likely to see sales fall further.

"Without an improvement in access to finance, or a lowering of rates, building activity will start to contract from late this year," he said. 

“Many buyers have been forced from the market by the higher rates, but even those buyers unaffected by the RBA’s actions are unwilling to purchase given the economic uncertainty.

“There are long lags in this cycle given the large volume of building work underway which will obscure the impact of the rate rises on the wider economy. There is a risk that once the contraction in home building occurs, and slows activity across the rest of the economy, that it will prove difficult to stop.

“The RBA overshot interest rate increases after the GFC (Global Financial Crisis) and in previous cycles, resulting in a roller coaster ride for the building industry. It appears that the RBA is set to continue this boom-to-bust cycle," Mr Reardon said.

“The RBA doesn’t need to crush the economy in order to slow inflation. The supply chain disruptions that caused the high inflation in recent years are easing for reasons unrelated to the RBA’s actions.

“The focus of policy makers should be on other tools to address inflation, not simply interest rates. Interest rates are a poor tool for addressing inflation and fiscal policy measures have been shown repeatedly to be better at managing the risks of embedded inflation.

“The RBA isn’t going to return the economy to stability by putting the building industry through boom-and-bust cycles,” Mr Reardon said.

www.hia.com.au

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BUILDERS are hoping for a sustained increase in high density dwelling construction of the type that is driving early signs of a rebound in building approvals. That is Master Builders Australia deputy CEO Shaun Schmitke's assessment of the December Australian Bureau of Statitistics (ABS) building approvals report.

“According to the ABS, new home building approvals bounced back sharply during December 2022," Mr Schmitke said. "Compared with November, 18.5 percent more new homes were approved.

“However, the flow of approvals is still a little weaker than 12 months earlier," he warned. “December’s performance was driven by higher density homes, which jumped by some 58.8 percent during the month. Approvals for new detached houses dipped by 2.4 percent during December. 

“Higher density home building approvals are particularly sensitive to interest rate movements and have been on the way down over most of 2022 until a sharp jump in December.

“The stronger performance of medium/high-density home is welcome, and we hope this will be sustained as renters are crying out for more new apartments and units," Mr Schmitke said.

“Latest inflation data shows that rental costs are increasing at their fastest rate in a decade.

“Further increasing the supply of new apartments and units will be crucial to addressing housing affordability challenges in the rental market.

“Australia’s capacity to absorb the inward migration in the volume we need will depend on having an abundant supply of rental accommodation,” Mr Schmitke said.

For detached houses, the continued reduction in activity followed the achievement of record output during the pandemic, Mr Schmitke said.

“Detached house building is being held back by insufficient supplies of titled residential land," he said.

“We continue to work closely with governments in order to address some of these obstacles and achieve a sustained pipeline of projects, that are delivered on time and to the standards communities expect.

“Since the pandemic, demand for housing in regional markets has increased significantly. There are particular concerns that land supply bottlenecks are an obstacle when it comes to new home building which is impeding their wider development,” Mr Schmitke said.

www.masterbuilders.com.au

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