New home building to keep falling despite lift in housing sentiment: Master Builders' research

The amount of new homes built across Australia is tipped to keep falling until next financial year, with a pick-up in housing sentiment taking some time to translate into more activity, new research suggests.

Despite the drop, the quantity of new homes is still high by historical standards, offering choice to potential buyers, Master Builders Australia say.

New home building starts are predicted to fall 11 per cent during this financial year and another 3.4 per cent to bottom out at almost 168,000 during 2020-21, and then rise modestly, the body predicts.

“Sentiment has certainly improved,” Master Builders Australia chief economist Shane Garrett told Domain.

“The issue with the housing market is it often takes time for better sentiment to translate into more activity on the ground.”

He cited two recent interest rate cuts, tax cuts and a clear conclusion to the election as reasons for a “cautiously optimistic” outlook.

Population growth and job creation would also support demand for housing over time.

“House building takes time to respond to improved conditions,” he said.

“Prices are still lower than they were a year ago, and that is influencing people.”

His forecast of about 168,000 new homes to be built in the quietest year was still high by historical standards, he said.

And as recently as March, there were 215,000 new homes under construction, which are already available to live in or will be available soon.

“There is a very large number of new homes becoming available to the market. That is a good thing for people considering buying their very first home or considering a new home,” he said.

“From the point of view of choice, the amount of building that’s taking place is still very high.”

But new supply was unlikely to meet the needs of a growing population, creating the risk of rising prices, he said.

Issues with apartment defects and cracking were “unwelcome”, but were unlikely to have a major impact on the volume of new building, he said, hoping governments would soon address the situation.

BIS Oxford Economics executive chairman Robert Mellor said the investor market was another reason why construction of new homes was not yet picking up, particularly for high-density homes.

“Rental returns are not very good at the moment,” he said. “Rents are showing no signs, particularly in Sydney, of accelerating.”

In that environment, investors may not see residential property as an attractive investment and may look instead to dividends on offer in the share market, despite current volatility, he said.

He also warned that if worries about building quality weren’t resolved over the next year, the market for new builds could recover more slowly than forecast.

His outlook is a little less optimistic for this year than the Master Builders’ report and more upbeat in future, assuming strong population growth will drive stronger demand for dwellings.