New home building set for record year but will decline in next couple of years

This year looks like being a record for new home building in Australia but the outlook for 2017 is not buoyant with predictions that it could be very different as new homes sales are falling. The monthly survey of Australia’s largest volume builders by the Housing Industry Association (HIA) reveals that total seasonally adjusted new home sales fell by 9.7% in July 2016 following an increase of 8.2% the previous month. HIA chief economist Harley Dale said that the overall trend decline in new home sales is accelerating, signalling a relatively sharp drop from a record high in new dwelling commencements from 2017. ‘New home construction has been the kingmaker of the Australia economy, but the cycle has peaked. In all likelihood we will experience sharper falls in new home construction in both 2017 and 2018,’ he explained. ‘The magnitude of decline in new home construction in coming years will of course be exaggerated by where we are coming from and that is record levels of medium/high density construction and historically healthy levels of detached/semi-detached dwelling construction,’ he pointed out. ‘There will no doubt be a tendency to sensationalise any negative results for new housing as the trajectory of the down cycle unfolds. We would do well to remember that this down cycle is following a record high that is some 24% higher than the previous peak in 1994 and that there is an unprecedented degree of uncertainty this time around as to how the next few years of new home building unfold,’ he added. A breakdown of the figures shows that detached house sales fell in all five mainland states in July after rising everywhere in June. Sales dropped by 12.6% in South Australia and were down by 8.7% in Queensland, by 8.2% in Western Australia, by 6.2% in New South Wales, and by 6% in Victoria. Dale also explained that the current new home building boom is unlike any other that has come before it. It is the longest and largest in Australia’s history but he added that it is marked by substantial regional divergences in the levels of activity in various markets around the country and the mix of dwelling types being built has changed dramatically. ‘As the down cycle in new home building unfolds, the record pipeline of medium/high density dwellings in particular creates considerable uncertainty as to the timing and magnitude of the decline in construction,’ he concluded. HIA’s forecasts are for a peak of over 232,500 new dwelling commencements to have been reached in 2015/2016, which will be followed by three consecutive years of decline. New dwelling commencements are forecast to bottom out at a level of around 166,500 in 2018/2019. Continue reading

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