New home construction in Australia is expected to “get worse before it gets better,” according to Deloitte Access Economics, but should recover towards the end of the year.

Australia is only one of five nations entering 2021 “very well positioned” according to the quarterly business outlook from Deloitte Access Economics (DAE). This suggests that the introduction of the COVID-19 vaccine (expected to start in February 2020) will ease pressure on the Australian and global economies.

While the outlook suggested that “while 2020 damage is receding rapidly, it has definitely not gone away”. It added that “Australia made many mistakes juggling COVID, but so far we have made fewer mistakes than most of the world”.

Looking at the housing market, DAE suggested that property prices are currently rising despite high unemployment and low population growth due to low interest rates and support packages.

The outlook is: “As in the past with the pandemics, borrowing costs are falling and staying low. Both solid and The variable interest rates have decreased significantly compared to the values ​​before COVID. And the Reserve Bank shows promise Heart to keep it low for the years to come and thereby create additional trust for the real estate markets. “

The outlook suggests that this will lead to a separation between rising prices and the still declining construction activity.

According to the DAE, construction activity is falling because:

  • The population growth was “crushed”, while with the loss of jobs many people “move back in with mom and dad”.
  • Several key markets are oversupplied;
  • High debt, high unemployment, and a lack of confidence have dampened appetites across the industry, including banks’ appetites to finance developers to build homes. and
  • There are concerns that the JobKeeper rollback and other immediate measures will damage the market.

“This combination of factors has worsened what was already a major downturn in construction,” says the Outlook.

However, it adds that “the cavalry is clearly coming”.

“Trust is returning, as are foreign students – at the moment only in modest numbers, but these pilot projects indicate a key potential,” the outlook continues.

“Vaccines suggest migrant flows will return (we set them for mid-2022 but the Treasury Department seems Accept mid-2023); State governments (especially in Victoria) spend more on social housing. A change in attitudes about where house prices are going next could see investors return to the market and leading indicators are on the move, ”it said.

“Most notably, new home loan commitments have risen by a third in the last five months alone, and residential permits have increased nearly 9 percent over the past year – and the Melbourne reopening suggests that there is more good news . ”

As the latest ABS statistics show, loan commitments have hit a record high with a particular surge in Victoria.

However, DAE warns that “Housing in Australia [will get] worse before it gets better ”.

The outlook assumes that it will bottom out at around 37,000 home construction starts by mid-2021, before recovering to over 50,000 home construction starts by 2023.

Looking ahead, Deloitte Access Economics predicts that the unemployment rate will fall back to 5.5 percent by mid-2023 and that tourists and foreign students will return to Australia in greater numbers by 2022.

The outlook reads: “Despite the ongoing problems with COVID cases and the logistical and political challenges ahead of vaccine rollout, 2021 is likely to continue recovery in sectors devastated by the lockdowns and border closings of 2020.

“If we can keep COVID in check and get vaccines in place, businesses like housing, food, entertainment, airlines and others will continue to return from the abyss. And there’s more: by 2022, there will be more tourists and foreign students here. Yes, cavalry is coming, ”commented Chris Richardson, partner at Deloitte Access Economics.

[Related: More home owners expect house price rise in 2021]

Housing construction by mid-2021

Last updated: January 16, 2021 Published: January 18, 2021

Annie Kane

Annie Kane

Annie Kane is the editor of The Adviser and Mortgage Business.

In addition to writing about the Australian brokerage industry, the mortgage market, financial regulation, fintechs and the broader credit landscape, Annie hosts the Elite Broker and In Focus podcasts and The Adviser Live webcast.

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