Demand for new homes boosts construction activity

By Gerv Tacadena

Australia’s residential construction sector remain busier than usual as housing demand continues to surge on the back of government-led support and favourable market conditions.

Australia’s residential construction sector remain busier than usual as housing demand continues to surge on the back of government-led support and favourable market conditions.

REA Group executive manager for economic research Cameron Kusher said dwelling commencements, ongoing constructions, and completions are still at elevated levels.

“Over the past year, we have seen an unprecedented level of demand for new housing right across Australia for a number of reasons,” he said.

“The data we’re focusing on looks at commencements, completions and currently under construction, and they tell us a lot about what is likely to happen in coming months.”

Housing starts highest on record

Quarterly data from the Australian Bureau of Statistics showed a 23.2% rise in dwelling commencements.

During the quarter, around 41,276 houses started construction, the highest number on record. This represented a gain of 13%.

Unit commencements also increased, up by 46% to 22,974 over the quarter.

This growth in unit starts was the highest since September 2018.

“This data highlights that demand for new homes remains strong and the surging demand initially on the back of the HomeBuilder grant has created a substantial pipeline of dwelling construction, particularly for houses,” Mr Kusher said.

Ongoing construction trending higher

By the end of the second quarter of the year, 211,686 dwellings were in construction across Australia.

While the number of current constructions during the quarter was the highest since 2019, it remained 8.6% lower than the previous historic peak.

Interestingly, the number of homes under construction increased by 16.8% in the quarter, hitting a new historic high.

On the other hand, while the unit market hit a 2.8% increase in ongoing construction, activity remained 23.4% below the recent peak.

“The quarterly release also revealed that the typical length of time from commencement to completion for a house nationally was 2.23 quarters for houses, 3.45 quarters for townhouses and 8.2 quarters for units,” Mr Kusher said.

“Given this, we can expect high house completions over the coming quarters and if completions begin to slow, the pipeline will slow quickly.”

Dwelling completions down from historic peaks

The number of dwellings that completed construction rose by 1.5% during the quarter, the highest since March 2020.

The housing segment buoyed the overall figure with a 5.8% growth in completions, offsetting the 3.4% decline in unit completions.

Both segments, however, are down on their historic peaks.

“With a solid pipeline of newly commenced properties and a high volume of stock under construction. I would expect that over the coming quarters the number of dwelling completions, and particularly new house completions, should rise,” Mr Kusher said.

Outlook for construction activity

Mr Kusher said for the higher-density supply, the recent gain in commencements would result in steady completions over the coming months.

“But assuming commencements continue to rise, the volume of units under construction should remain heightened and potentially push higher,” he said.

Mr Kusher said these recent gains reflect the stimulus from the government to build new homes. The question, however, is what would happen if the impact of the stimulus wears off.

“The re-opening of the international border should create some more demand for new housing from non-citizens and there is potentially an uptick in new construction in some non-capital city areas where housing demand has spiked,” he said.

“Nevertheless, the past year has seen unprecedented demand for new housing, and it is likely that it has now peaked which is likely to result in fewer commencements and completions going forward from here.”

Photo by Josh Olalde on Unsplash

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