The recently released Victorian economic and industry Outlook has reported that a record number of detached housing starts will occur in Victoria over the next 12 months.
“With over 45,000 starts, this is almost 17 per cent higher than the peak of the previous boom in 2018.”
This is coupled with a record 146,000 detatched homes commencing nationally in the same period.
Industry Activity For the Future
With renovation activity also at an all time high, this large volume of work will ensure that the industry remains very active until at least the second half of 2022 and is likely to remain elevated for a number of years due to the nature of the COVID recession and house price growth. However, it is forecast that this level of activity is not likely to be seen again for many years, if not decades.
The Cause of the Boom
The combination of factors that have led to this boom is unprecedented and are driven by HomeBuilder and low interest rates as well as a change in consumer preference away from high density areas.
The Industry’s Biggest Challenge
The key challenge for the industry has shifted from a slump in demand this time last year, to having sufficient supply of materials, labour and land to satisfy this demand. The extension of HomeBuilder’s commencement deadline will help limit the impact of constraints imposed by land, labour and materials and ensure the elevated volume of detached homes will be sustained for longer.
The outflow of Melbourne residents is a new and concerning trend. The net flow of interstate migration from Melbourne was evenly balanced until the COVID recession. In 2020, more than 26,000 people left Melbourne rather than arrived from other parts of the country. This will compound the impact of the loss of overseas migration and impair a return to stable economic growth.
Multi-unit starts are anticipated to decline towards the end of 2021. The timing and speed of a recovery in overseas migration will have a significant impact on these forecasts. While the Government expenditure has been successful in offsetting the loss of migration thus far it cannot be sustained. The return to stable and certain population growth is central to stable economic growth and sustained employment in the building sector.
“In 2020, more than 26,000 people left Melbourne rather than arrived from other parts of the country.”
If overseas migration returns sooner, or faster, than anticipated, then the trough of new housing starts in 2023 will not be as deep as currently forecast. Equally, if the restrictions on skilled migration continue into 2022 the depth of the emerging slowdown in new detached starts will be exacerbated.
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