The sharp contraction in new home building during the past year is finally coming to an end, but the threat of the coronavirus outbreak could hit housing demand by next year if the travel restrictions drag on and weaken the economy further, the Housing Industry Association says.
HIA chief economist Tim Reardon said that while the travel ban had had no immediate and direct impact on the building industry, it could weaken household spending due to a potential rise in unemployment.
“Household expenditure has been a particular weakness in the economy over the past couple years, so we have concerns that those travel restrictions will exacerbate that,” Mr Reardon told The Australian Financial Review.
“The restriction is unlikely to directly impact demand for new homes this year due to the current pent-up demand, but it could do beyond that.
“Depending on the length and depth of those restrictions, it may impact the housing market in 2021 in terms of demand.”
Despite the looming risks, the building industry is finally seeing signs of recovery after a drop of 22.34 per cent in commenced construction from 2018 to 2019.
“Despite this whopping contraction, we believe the cycle has just about run its course,” said Mr Reardon.
“The overall housing market reached a turning point at the end of 2019. Following a fresh round of cuts to the official cash rate, housing prices returned to growth across all eastern seaboard capitals and home lending activity had also been improving for six months, particularly among owner occupiers.
“As for the new home building side of the market, it is only just on the cusp of returning to a new growth phase.”
HIA forecasts new home starts to climb by 3.6 per cent to 177,140 homes by the end of 2020-21.
“We think the recovery will be a very modest affair. At best, this next cycle will see the current rate of home-building maintained, with slow growth in coming years,” Mr Reardon said.
“Unfortunately, international factors are likely to impact on the volume of home-building in Australia over the medium term. The effects of trade and tourism restrictions with China pose a material downside risk to our forecasts.
“As these effects are still emerging, we have not factored them into our forecasts.”
(Source: Nila Sweeney, afr.com, 25 Feb 2020)
