Residential building sector in for a bumpy ride until 2026

Master Builders Australia has revised its forecasts for the building and construction industry amid ongoing inflationary pressures and tradie shortages.

MBA Chief Executive Denita Wawn said new home construction was likely to fall well short of the 200,000 new homes needed to keep up with long-term population growth.

“While pandemic conditions brought forward some residential building demand, the current economic conditions of interest rates hikes, inflation increases, and continued shortage of workers and materials, are significantly contributing to the decline,” Ms Wawn said.

This report comes after the Australian Government announced it will lift its migration cap by more than 20% this year to nearly 200,000.

According to the MBA’s prediction, new residential builds will fall until 2024 before it picks back up again in 2025.

^{Source: MBA residential construction forecast}

Ms Wawn said there are other factors to consider when examining the long-term challenges of the residential construction sector.

“Shortage of land in the right places, high developer charges, and inflexible planning laws also restrict opportunities to meet the housing needs of our future,” she said.

CoreLogic Economist Kaytlin Ezzy echoed a similar sentiment.

“The scarcity of available residential land continues to be a driving factor across Australian land markets, with land prices surging at a time when the number of lots sold is declining,” Ms Ezzy said.

“While increasing interest rates, rising construction costs and increased uncertainty, particularly across the building industry, has likely smothered some land demand, the surge in land prices suggests that those that want to build are finding it difficult to secure lots.

“With land often taking more than a decade to move though the development pipeline, it’s unlikely we’ll see any material change in land supply for some time.”

Despite a rocky road ahead for the home construction industry, non-residential building activity will fare better with a 1.1% decline in 2023 followed by a 6.2% increase in 2024.

Data released from the Australian Bureau of Statistics found construction work fell 3.8% in the June quarter. 

New building approvals also dropped sharply by 17.2% in July 2022, with the RBA cash rate increase likely playing a leading role in the decline.

Read More: What happens when your builder goes bust? A guide

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