• A report from Australia’s leading housing company has forecast that the current construction boom is likely to end by the middle of next year.
  • The increase in construction projects of almost 33% since 2019 is not sustainable, it said in its quarterly report.
  • The projections follow warnings from property developers’ associations that the current rate of activity is masking bottlenecks that are undoing potential profits.
  • Visit the Business Insider Australia homepage for more stories.

A new report casts further doubts about the future beyond Australia’s current construction boom, suggesting the sector could fall off the cliff by mid-2022.

In its latest quarterly outlook, the housing industry’s governing body, the Housing Industry Association (HIA), raised concerns that two years of limited population growth will severely affect the industry – even if the borders are reopened.

The report showed that houses took twice as long to build during the pandemic and national building boom.

It found that while locks were challenging, they weren’t a major contributor to delays.

Instead, rising costs and time frames due to labor and material shortages as the industry experiences its biggest year in existence have been the underlying causes.

The government’s HomeBuilder program, which awarded $ 25,000 in grants for construction and renovation projects, has fueled much of that demand.

The HIA figures show that this has resulted in a massive increase in the time it currently takes to build a house; from a period of seven to nine months to 12 months or more.

Tim Reardon, chief economist at HIA, said current interest rates are unlikely to remain the norm this year as the association estimated construction began on a record 135,390 homes; 32.5% more than 2019.

While Reardon concluded that “the housing sector has pulled the economy out of recession,” he said this new pace was not going to become the norm.

The HIA noted that construction starts are expected to drop to 125,030 in the next fiscal year if the industry is hit by the impact of two years of no strong population growth, higher construction costs, and the end of HomeBuilder.

Reardon said HIA projects’ housing construction will drop below the decade-long average, falling to 97,850 in 2023 and a low of 93,770 the following year.

It follows similar warnings from the Association of Professional Builders, which Business Insider Australia told Business Insider Australia in early August that despite an oversupply of labor, rising material costs and delays due to lockdowns mean many in the industry are not making a profit.

The association estimated at the time that up to 60% of the operators lost money.

Russ Stephens, co-founder of the Association of Professional Builders, told Business Insider Australia that excessive demand creates shortages that destroy the potential for net profits for builders.

He suggested that the market would weaken as new contracts dried up later in the year.

“Everything may leave the industry in a terrible state,” said Stephens.

“You will have half-finished houses that good operators do not want to touch because, firstly, it is a burden and, secondly, there is still work to come.”

Reardon said he anticipates the Reserve Bank will begin a rate hike before 2024, which will also impact housing construction numbers due to rising costs.

Additionally, he suggested that even if migration returns from mid-2022, the current volume of new housing construction cannot be sustained as those who have claimed the HomeBuilder grant will run out.

Homeowners who have started construction will see their properties completed by mid-2022, Reardon said, causing a further decline in homes under construction.