Australia has had a housing shortage for years. It’s about to get a whole lot worse.
The construction industry is starting to panic.
And we should be nervous too.
Because if we don’t start building more homes, and soon, the whole nation is in trouble.
And house prices are going to head into the stratosphere.
So there’s a few pieces to this puzzle.
The first is that builders are going to the wall in record numbers. The latest insolvency data from ASIC showed that 1,236 companies in the construction sector have already gone into this financial year, which Equifax’s head of product and ratings services, Brad Walters, believes will worsen over the next 12 months.
“For another six to 12 months, it’s going to continue to be a tough environment in the construction industry”, Walters told The AFR late last month.
“Nine out of 10 unsecured creditors get nothing back”, Walters said. “A lot of people are watching the construction industry very particularly because of the trends we’re seeing gather momentum”.
Likewise, new Mirvac CEO, Campbell Hanan, warned of rising builder insolvencies amid tighter financing conditions and rising costs, which will create a “dire” shortage of housing over the next four or five years.
“That’s a product of a host of things”, Hanan said.
“The most obvious is we’re not building enough, and now we have the added pressure (in the) construction sector and subcontractor markets where the cost of doing business has increased”.
“Often those contractors and builders have set prices in a historic framework, which they’re struggling to meet”.
Hanan believes the rise in insolvencies across the construction and subcontractor markets are “the canary in the coalmine” for the industry.
The home building industry has been caught in a perfect storm.
First, the former Morrison Government’s HomeBuilder stimulus drove a massive increase in demand, with builders signing fixed price contracts.
Then materials costs soared, pushing construction costs above those fixed contract prices, causing many builders to go bust.
Add to that eleven rate hikes in a row, and an uncertain interest rate outlook, and construction demand is cratering. Construction loans have fallen to GFC lows:
At the same time as new home sales more than halved:
While the pipeline of unfinished homes from the HomeBuilder stimulus will keep builders busy this year (sorry if you were hoping on finding a tradie!) building activity will collapse in 2024, based on the forward-looking indicators above.
That means Australia’s housing shortage is going to go from desperate to ‘dire’.
And it’s just Economics 101. When a market is in shortage, prices go up.
Especially as demand surges on the back of record immigration levels.
The Federal Government will tinker at the edges – like they’re half-baked plan to try to get super funds into social housing. But it won’t work.
This is bigger than that.
Australia’s housing shortage is about to get epic.
JG.
V says
How come, Australia has the most expensive housing in the world, and still there is not enough money for builders within that extraorbital price..