'Unprecented uncertainty' down the line as number of home starts breaks 12 year record

A record year for Australia’s volume home builders raises concerns that the country’s largest-ever housing construction cycle has peaked. 

Australia’s largest volume builders made 69,161 starts in the year to June, just topping the previous record of 69,100 in 2004, the latest Housing 100 report produced by the Housing Industry Association and Colorbond Steel shows. 

But while the ranking clearly showed a rebalancing in the housing economy towards the eastern states from the west – Melbourne-based Metricon knocked Perth-based BCG from the top of the list with 4,365 starts – the future direction of housing construction, which has buoyed the Australian economy in the wake of the resources boom, was less certain. 

‘Unprecedented uncertainty’

“The short-term outlook is healthy,” HIA chief economist Harley Dale said. “Beyond this year the housing pond becomes muddier – the record level of medium/high density housing product in the pipeline provides the Australian economy with an unprecedented degree of uncertainty regarding the timing and magnitude of the down cycle.”

House price growth is slowing, the latest official figures show. Consumers’ ability to pay more for house and land packages is weakening, making it unclear whether the momentum that has seen housing commencements increase for four straight years will continue, even at a time of record low borrowing costs. 

Photo: HIA-Colorbond Steel Housing 100 2015/16

Credit loan restrictions driven by banking regulator APRA, as well as what he called “cash-grab transaction costs” imposed by state governments in Victoria, NSW and Queensland on home purchases by foreign buyers increased the risks of a downturn, Dr Dale said. 

In apartment construction, the ranking of Meriton, Brookfield Multiplex then Mirvac was unchanged, but the number of housing starts for all three fell from the previous year.

The picture is mixed, however. While approvals of new dwellings have peaked, coming off their record highs of last year, the latest figures for July showed a monthly jump in new home approvals. 

‘High point of oversupply?’

Westpac chief economist Bill Evans said on the balance of risks the housing construction sector was likely to continue to grow.

“The construction cycle is going to contribute more to growth than we have seen in the past,” Dr Evans said at the announcement of the report on Wednesday. “But you have to worry that at some point you will reach that high point of oversupply.”

Photo: HIA-Colorbond Steel Housing 100 2015/16

The home builder with the biggest absolute increase in starts last year was Newcastle-based MJH Group, previously called McDonald Jones Homes.

Swelled in part by its December acquisition of Tasmania-based Wilson Homes, the privately-owned company – which also took a stake during the year in troubled Victorian rival Simonds Group – jumped by 1034 starts to 2173 homes, pushing it into eighth place overall from 14th. 

‘Prices have come off’

“It was a record for us,” said managing director Andrew Helmers. “The basic formula is still low interest rates, land availability and confidence”

Greenfield developers had to be willing to cut their profit expectations to keep volumes rising, Mr Helmers said.

“The prices have come off,” Mr Helmers said. “The clever developers with a bit of room to move, are adjusting their prices. It’s good signals for buyers. The peak of the market was about Fathers’ Day last year.

“After that it seemed to switch off – it just got beyond the pale. I think buyers saw that. It’s still a land of opportunity for any agile builder in my view.”

This story was first published in the AFR