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New home building to contract

18 May 2020 Emma Ryan
New home building to contract

The number of new homes being sold has fallen 22.8 per cent since the introduction of COVID-19 restrictions, creating flow-on effects to the building and construction industry, according to new research.

New home sales fell to their lowest level on record in March, according to the HIA, which conducts a survey each month of the largest 100 home builders in Australia on their volume of sales (contract to build), .

“In parallel, the number of cancellations of projects now exceeds 30 per cent. This is more than four times the typical rate of cancellations,” HIA chief economist Tim Reardon said. 

“During shocks such as the GFC or the 2018 credit squeeze, the cancellation rate peaked at 17 per cent.

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“In net terms, this equates to a contraction of more than 50 per cent in the volume of new building work in the future, and this will begin to be felt across on-site activity in the second half of 2020.”

That being said, Mr Reardon said HIA expects to see on-site work begin to contract as early as July 2020 in some regions.

Furthermore, Mr Reardon said the COVID-19 impact followed a market slowdown, which had been underway since mid-2018.

“This COVID-19-related contraction compounds the slowdown in the market that has been underway since mid-2018. The volume of home building underway at the end of March was already 18 per cent lower than in mid-2018,” he explained.

“This week, HIA’s trades availability index showed a marginal surplus of skilled trade’s people in the March quarter for the first time since 2013.

“We expect the COVID-19-related contraction in building work will see a significant reduction in work hours on building sites in the second half of 2020.

“These skilled trades are typically small businesses and therefore will not be recorded as unemployed. Rather, they will initially work fewer days per week as work on their books shrinks. This will then drag on the prospect of an economic recovery across the economy into 2021.”

Mr Reardon added: “Unlike the reopening of other sectors, the lead time for the home building pipeline is six to nine months, so even if the economy restarts on 1 July, the supply of work in residential building will continue to decline into 2021.

“This would see home building in the December 2020 quarter at a level lower than during the 1990s recession, when the population was 32 per cent smaller than today.”

New home building to contract
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Emma Ryan

Emma Ryan

Emma Ryan is the deputy head of editorial at Momentum Media.

Emma has worked for Momentum Media since 2015, and has since been responsible for breaking some of the biggest stories in corporate Australia, including across the legal, mortgages, real estate and wealth industries. In addition, Emma has launched several additional sub-brands and events, driven by a passion to deliver quality and timely content to audiences through multiple platforms.

Email Emma on: [email protected]com.au

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