HIA’s economic and Industry Outlook forecasts have recently been released for new home building and renovation activity across the country. Both the detached dwellings and renovation forecasts have been revised indicating that 2021 will be a stronger year than first predicted.
All the leading indicators point to just over 40,000 detached homes about to commence construction in Victoria in this financial year, which would be a record.
The extension of HomeBuilder in November is the main reason for the significant upgrade in HIA’s forecasts.
The record year forecast for detached dwellings has also been facilitated by low-interest rates, a significant shift in population and broadly improving confidence.
Regional Victoria is showing a large increase in activity as many Melbourne residents are making the shift to regional areas.
It’s also encouraging to see that demand for detached homes has been particularly strong amongst first home buyers who now account for 43 percent of new home loans in Victoria.
The strong conditions for detached homes are in contrast to the outlook for multi-units, which will continue to cool. The loss of overseas migration hit the multi-unit sector immediately and the number of new unit starts is falling.
A cooling in Victoria’s multi-units market was always expected, given the heights from which it was coming down. The loss of overseas arrivals is anticipated to continue in 2021 and will accelerate this trend.
Beyond the current detached home building boom, we anticipate Victoria will be the hardest-hit amongst the states and territories as Victoria is more dependent on overseas migrants than any other jurisdiction except New South Wales and has also been more dependent on foreign students and international tourists than any other state.
Until recently, Victoria received more overseas migrants than any jurisdiction except New South Wales; more interstate migrants than any except Queensland; and was more dependent on foreign students and international tourists than any other.
These inflows sustained strong employment levels, especially in apartment construction, and in 2020, they came to an end.
The absence of overseas and interstate-driven population growth will accelerate the cooling of the local housing market in 2023 and beyond, especially apartments.
In light of the extension of HomeBuilder in November, HIA has also revised its renovations forecasts upwards. During the pandemic, a lot of people have spent less of their income on tourism, entertainment, eating out, and instead, have chosen to upgrade their homes. All indications are that this will continue into 2021 as international travel is not expected to return until at least 2022. Expenditure on ‘hardware, building and garden supplies’ remained elevated in the December quarter and renovation projects accounted for 19 percent of Victorian HomeBuilder applications as of 29 January 2021.