Nine consecutive rate increases have stifled the building boom
The residential construction sector is facing its worst year in more than a decade as interest rate rises stifle the building boom.
Nine consecutive rate increases have caused housing construction starts to plummet, according to the Housing Industry Association’s latest Economic and Industry Outlook report.
HIA chief economist Tim Reardon said that further Reserve Bank rate hikes in 2023 will accelerate the downturn.
“There was a large volume of work in the pipeline when rates started to rise in May 2022, and there remains a record number of homes under construction, but this will shrink quickly as market confidence continues to face,” Reardon told The Australian. “Lending for the purchase or construction of a new home had already fallen to its lowest level since 2012 by the end of 2022, and the full impact of last year’s rate increases is still to flow through to households. The number of detached houses commencing construction is set to decline this year and next to its lowest level since 2012.”
The construction industry recorded 120,000 detached housing starts in 2022 and has predicted 109,000 for this year, according to The Australian. In 2024, it is predicted that the number of detached housing starts will slip below 100,000 for the first time in a decade, hitting just 96,300.
Reardon said that the RBA appears set to repeat the cycle the building sector experienced after the Global Financial Crisis.
“Following an initial cut to rates, the RBA then increased rates quickly, bringing the building industry to a stall, before being forced to cut rates again to avoid adverse impacts on the wider economy,” he told The Australian. “It is also unfortunate that higher rates will further impair the ability of the market to respond to the acute shortage of housing stock.”
The HIA report comes as public hearings continue at a joint parliamentary inquiry into corporate insolvencies as a wave of building company collapses is expected to continue, The Australian reported.
Read next: Another Queensland builder collapses
In his opening statement to the joint parliamentary committee, John Goddard, of Subbies United, called for an overhaul of the liquidation process, saying that from a subcontractor’s perspective, the current process was akin to “playing Russian roulette”.
“The big winners in any liquidation are the liquidators, their lawyers and referral networks,” Goddard said. “The big losers are the unsecured creditors, most of whom are subcontractors. The construction industry is brutal, and only the toughest and smartest subbies survive for the long haul. I know of dozens of subbies who have been destroyed by liquidating builders.”
Have something to say about this story? Let us know in the comments below.