The Reserve Bank of Australia’s latest Statement on Monetary Policy (SoMP) showed that “demand for new detached housing has fallen considerably since the start of the year, due to rising interest rates, higher prices for land and construction alongside falling established home prices, and poor buyer sentiment arising from construction delays”:
“Consistent with this, building approvals, new greenfield land sales and new home orders have all declined”.
Yet, the pipeline of houses under construction has swelled to all-time highs on the back of the soaring costs and supply constraints, “reflecting the delays associated with constructing the large number of dwellings approved during the pandemic”:
The RBA’s findings accord with the Australian Bureau of Statistics (ABS), which reported that a record high 242,000 homes were under construction across the nation in the June quarter:
The Housing Industry Association (HIA) explained that builders were struggling to complete contracts from the HomeBuilder stimulus because of rising supply costs:
“Australian home builders are still struggling to complete the enormous pipeline of work they accumulated over the last two years,” stated HIA Economist, Tom Devitt…
“Supply constraints are continuing to hold back completion of these projects. Materials constraints have plagued builders over the last two years, and shortages of skilled trades have only become more acute.
“These supply constraints will keep Australia’s home builders busy this year and next as they continue to work down this record volume of detached house projects”.
This came as the National Housing Finance and Investment Corporation (NHFIC) last month reported that the cost of key building materials had soared between 20% and 40% in the year to June, with supply constraints accounting for at least 80% of the cost inflation:
This cost hyperinflation is primary reason why so many builders have gone bust this year.
Record low interest rates and the former government’s HomeBuilder stimulus drove thousands of building contracts to be signed at fixed prices. Then the cost of key building materials soared amid global supply constraints, causing builder margins to turn negative.
The end result is that builders are busy bleeding money at an alarming rate, pushing many into insolvency, and creating a “loss-making” boom for the construction industry.
The long-term implications are concerning given it may leave the nation with reduced building capacity at the same time as the federal government ramps immigration (housing demand) to record levels:
It’s a disaster in the making, especially for vulnerable Australia’s languishing in the under-supplied rental market.
