Detached Housing Boom Continues 

HIA has been helping its members through some of the toughest challenges the industry has ever faced. The cost of construction remains the most significant pinch point for building businesses in 2022 as the industry works through the biggest detached building boom on record. 

The pandemic has resulted in home buyers changing their housing preferences somewhat too. There has been a clear shift towards lower density housing during the pandemic and this trend does not appear to show signs of slowing.  

This shift is not just those in units moving to detached housing, but includes a move to fewer people per household. As a result, we have seen a significant change in the volume, type and location of new homes. 

Homeowners are wanting more living space with greater amenity, given all the extra time spent either locked down or working from home. All of this is continuing to support levels of housing demand usually only seen during periods of direct stimulus – almost a year after the end of HomeBuilder. 

The economic recovery has also defied all expectations. The unemployment rate is approaching all-time record lows, most recently falling to just 4 per cent. This is supporting consumer confidence, further aiding this ‘super cycle’ in housing demand, which will ensure that the industry continues to operate at capacity through 2022. 

The key feature that will mark the turning point in this cycle will be the rise in interest rates. The Reserve Bank is still confident that, over time, global supply constraints will ease and consumer spending behaviour will ‘normalise’. This will help ease inflationary pressures in Australia, which are still, fortunately, largely contained to fuel prices and home building costs, allowing the Reserve Bank to be patient on the interest rate front. 

Market interest rates, however, have already started increasing, especially for fixed rate mortgage for perceived riskier borrowers. This reflects the increasing aversion of lenders to perceived higher-risk borrowers, but also the greater optimism they have for the economy. This has the potential to have the same impact as the Reserve Bank lifting its own benchmark cash rate – that is, a reduction in households’ borrowing power, slower house price growth and weaker consumer confidence. 

Melbourne, especially, will also have to reckon with two years’ worth of lost overseas and interstate migrants, students and tourists. This will emerge as weaker demand for detached housing in the coming years. 

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