If homebuilding collapses, what happens to prices?
I reckon we can expect a big acceleration in prices somewhere around the middle of 2022.
That means I reckon we’ll continue to see prices grow around their current rate – somewhere around 10%p.a – for the next 18 months.
After that, I expect we’ll see prices accelerate – maybe another 5 percentage points – probably around the middle of 2022.
Now one of the stories of Covid is that we’ve had a solid bump in supply over the past 6- months, as government programs such as HomeBuilder have seen a surge in new home sales.
On the back of that, the Housing Industry Association (HIA) reckon that 2021 will mark a record year of detached house construction.
HIA are forecasting that there will be 146,000 detached housing commencing construction in the year to September 2021, which will be 20% higher than the peak of the previous boom in 2018:
This will keep builders busy, especially when you add in a surge of renovation activity.
HIA’s Economist, Angela Lillicrap, says
“This large volume of work will ensure that the industry remains very active through until at least the second half of 2022.”
“Renovation activity is also at an all time high and likely to remain elevated for a number of years due to the nature of the COVID recession and house price growth”.
“This level of activity is not likely to be seen again for many years, if not decades. 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.”
Yes. That’s what the boom WAS.
But look at what happens going forward. Housing construction falls in a massive hole.
HomeBuilder does cause a massive spike in detached housing construction, but a lot of that is demand that is ‘pulled forward’.
But that just leaves us in a hole after that.
And remember, when we’re talking housing, we can be talking some very long lead-times. It can take years – sometimes decades – for zoning changes to open up developable land.
So this boom and bust will throw the land market around.
And that means come the middle of 2022, we’re probably heading back to undersupply and shortage – especially when you remember the acceleration in household formation we’ve seen since Covid started.
Of course, the extent of the housing shortage will largely depend on what happens to population growth, and immigration in particular.
As you know, net immigration has gone negative – more people are leaving Australia than are arriving.
And the government anticipates net migration to be -96K this financial year, and -80K next year, before slowly recovering in 2022.
So a lot swings on that.
But the most likely outcome, regardless of what happens to immigration, is that the housing market tightens strongly heading into 2022.
And prices will accelerate on crunching supply.