Senior economist sees housing construction downturn in 2024

New home sales across Australia have fallen off a cliff and a leading industry expert has warned more pain is coming.

Housing Industry Association senior economist Tom Devitt said a “trough” in construction activity would hit the country in 2024, exacerbating pre-existing shortages and locking millions of Australians out of home ownership.

“Record low levels of construction at the same time as record high demand for housing,” he said.

“It’s exactly the opposite of what we want to see.”

Mr Devitt said the sharp rise in interest rates beginning in May last year had set the downturn in motion.

“Sales across the board just started to pull back and that is why they are so far down now compared to the same time last year,” he said.

“Every time the reserve bank lifts interest rates the same thing happens in the housing industry.”

Every state except for Western Australia has logged dramatic falls in new home sales, or the point at which a borrower and builder sign a contract, in the past three months.

Sales in Queensland fell 52.3 per cent compared to the same period in 2022, followed by NSW with a 48.4 per cent decline.

Victoria fell 37.2 per cent and South Australia fell 26 per cent, though the state recorded a dramatic 35 per cent increase in sales for the month of July.

Sales increased in WA by 17.3 per cent, but Mr Devitt cautioned building in WA was dominated by two major companies and sales in the state could swing.

Mr Devitt stressed the full weight of pain was still to come for both builders and buyers as a building slowdown combined with strong underlying demand, squeezing prices higher.

“It (interest rate rises) hasn’t yet translated into a proper slowdown in on the ground activity, that is going to be more from this point on actually, that’s why our forecasts have a trough in the market next year in terms of actual project commencements,” he said.

Mr Devitt said Perth and Adelaide were in the best relative positions to meet the housing challenge and he praised the South Australian government’s recent move to release more land for housing.

Master Builders South Australia CEO Will Frogley has also saluted the “proactive initiatives” pursued by the government to encourage more development, including a policy to scrap stamp duty on new builds for first home buyers.

In the past two years, builders in South Australia have put up about 12,000 new homes each year, but there is a shortage of housing in the state.

South Australia Treasurer Stephen Mullighan said July’s positive figures showed the state could buck the downturn.

“This is a significant result for South Australia showing the strength of our building industry and economy,” he said.

“We know new builds are slowing across the country, but SA is defying the downturn.

“Heading into an uncertain and potentially volatile period for the building industry, this is welcome news and should inspire confidence for South Australia’s building sector.”

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