New home building is likely to remain subdued until 2026 because of high interest rates, soaring inflation and ongoing labour and material shortages.
Master Builders Australia (MBA) has downgraded forecasts for the residential construction sector made earlier in the year to reflect ongoing inflationary pressures and labour shortages.
MBA chief executive Denita Wawn said until 2026, new home construction was likely to fall well short of the 200,000 new homes needed each year to keep pace with population growth.
Master Builders CEO Denita Wawn. Andrew Meares
The MBA expects total new building starts to fall until 2024 before resuming growth in 2025, with new unit developments to be hit hardest.
The organisation is now forecasting 192,060 new homes to be built in 2022, followed by 189,480 in 2023, and 174,930 in 2024.
By 2025, it expects home building to lift again and 188,410 new homes to be built.
Ms Wawn also said the residential construction industry faced long-term challenges, including land shortages and delayed approvals for land title and building applications.
“Shortage of land in the right places, high developer charges, and inflexible planning laws also restrict opportunities to meet the housing needs of our future,” Ms Wawn said.
Other types of construction are expected to fare better. The organisation expects non-residential building activity, which includes commercial buildings, to lift by four per cent in 2022 before dropping by 1.1 per cent in 2023.
The MBA then expects the industry to recover 6.2 per cent in 2024.
Civil and engineering construction is likely to show the strongest performance of the three sectors, the forecasts show.
Ms Wawn said the residential sector was lifting wages higher than the commercial sector to attract staff, which she said was highly unusual.
She also warned changes to the industrial relations framework – namely the shutdown of the Australian Building and Construction Commission – could lead to higher costs and longer construction times.
“Were it not for these changes, the forecast growth rates would be more substantial,” she said.
Construction work fell 3.8 per cent in the June quarter, the Australian Bureau of Statistics said, with bad weather and labour and material shortages contributing to the decline. New building approvals also dropped sharply in July, with high interest rates likely playing a role.
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