Australia’s construction boom will hit a wall by 2022, according to a new report

Australia’s construction boom will hit a wall by 2022, according to a new report
  • A report from Australia’s peak residential building body has projected that the current construction boom will likely end by mid-next-year.
  • The almost 33% uptick in building projects since 2019 was unsustainable, it said in its quarterly report.
  • The projections follow warnings from builders associations that the current rate of activity masked shortages that were destroying any potential profits. 
  • Visit Business Insider Australia’s homepage for more stories.

A new report casts further doubt on the future beyond Australia’s current construction boom, suggesting the sector could fall off the cliff by mid-2022. 

In its latest quarterly outlook, the peak body for the residential building sector, the Housing Industry Association (HIA), raised concerns that two years of limited population growth will heavily impact the industry — even if borders reopen. 

The report showed that homes were taking twice as long to build during the pandemic and national construction boom, with experts in the field suggesting the sector will face a hangover as the record level of construction declines.

It found that while lockdowns presented a challenge, they were not a major factor behind delays.

Instead, rising costs and timeframes due to labour and material shortages, as the sector experiences its biggest year on record, were the underlying causes. 

The government’s HomeBuilder program, which handed out $25,000 grants for building and renovation projects, has driven much of this demand

The HIA’s figures show this has resulted in a massive extension in the time it currently takes to build a home; from a seven to nine-month period, to 12 months or beyond. 

Tim Reardon, chief economist at HIA said current rates were unlikely to continue as the norm past this year, where the association estimated a record 135,390 dwellings started construction; 32.5% more than in 2019. 

While Reardon concluded that “the home building sector has pulled the economy out of the recession,” he said this new pace would not become the norm. 

The HIA found that the commencement of new construction were forecast to fall to 125,030 over the next financial year, when the industry will start to be hit with the effects of two years without strong population growth, higher building costs and the end of HomeBuilder.

Reardon said the HIA projects home building will decline below decade-long averages, dropping to 97,850 in 2023 and a low of 93,770 the year after.

It follows similar warnings from the Association of Professional Builders, which told Business Insider Australia in early August that despite an oversupply of work, the soaring cost of materials and delays due to lockdowns mean many in the sector weren’t making profits.

The Association estimated at the time that as many as 60% of operators were losing money.

Russ Stephens, cofounder of the Association of Professional Builders, told Business Insider Australia that excess demand was creating shortages that were destroying the potential for net profits for builders.

He suggested that a softening in the market would come from new contracts drying up as the year went on. 

“It all leaves the industry potentially in a terrible state,” Stephens said.

“You’ll have half-finished homes out there which good operators won’t want to touch because firstly, it’s a liability and secondly, they’ll still have work coming in.”

Reardon said he expects the Reserve Bank will start increasing rates ahead of 2024, which will also impact home building figures due a rise in costs. 

Further to this, he suggested that even if migration returns from mid-2022, the current volume of new home-building cannot be sustained, as those who used the HomeBuilder grant taper off. 

Homeowners who started building using the grant will see their properties finished by the middle of 2022, Reardon said, resulting in a further decline in homes under construction.