Building recovery on the horizon, but housing falls short of target

Despite renewed government efforts to boost housing supply, it appears Australia will fall short of its ambitious 1.2 million new homes target.

According to Oxford Economics Australia’s latest “Building in Australia” report, while there is optimism in the building sector, significant challenges remain.

GALLERY  

The report highlights that the benefits of government interventions in housing supply are unlikely to be felt until the latter half of the decade. This delay means that affordability issues will persist, keeping housing as a critical concern for many Australians.

Timothy Hibbert, the report author and Head of Property & Building Forecasting at Oxford Economics Australia, acknowledges the difficulties but remains optimistic about the future. “While FY2025 will remain soft, national total building construction is set to rise from FY2026 and hit a record level of activity by the end of the decade,” Hibbert said.

Hibbert also noted that while the residential sector will face a dwelling stock deficiency, all building forms are expected to contribute to a recovery. “Activity will inevitably recover in the residential sector. All build forms will contribute, driving total dwelling commencements to a new record level by the end of the decade,” he said. The non-residential building sector, currently in decline, is expected to see a recovery from FY2026, driven by hospital asset renewals and a robust pipeline of data centre projects.

Despite the optimistic outlook for the building sector, the current situation remains challenging. Higher interest rates and cost escalations have impacted dwelling construction, with total dwelling starts projected to drop by 10 per cent nationally by the end of FY2024, hitting a low of 155,700.

The demand for housing continues to outpace supply, with Oxford Economics Australia estimating a dwelling stock deficiency of 146,000 by June 2024, increasing to 164,000 by June 2027. “A bifurcation has emerged by market,” Hibbert explained. “Western Australia is leading in new house demand, with Queensland expected to follow.”

While there are signs of improvement in industry capacity, labour shortages remain a constraint. However, policy changes at both state and federal levels, combined with significant pent-up demand for housing, provide a solid foundation for the next upturn. Early 2025 is expected to see cash rate cuts, which will help in normalising the market by late 2026.

The report forecasts marginal growth in national total dwelling starts in FY2025 (+2%) to 158,300. The recovery in attached dwellings is expected to begin from FY2026, supported by falling interest rates, rising rents, social housing investments, and planning adjustments in key markets.

Looking ahead, the momentum in the building sector is expected to continue, with total commencements projected to rise by 33 per cent to 241,900 dwellings by FY2029, surpassing the previous record set in 2016.






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