Construction of new homes set to bottom out by the end of the decade

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The construction of new homes will take a significant fall over the 2015/16 financial year according to the latest figures from the Housing Industry Association.

Released yesterday, the HIA’s Winter 2015 National Outlook predicts overall construction levels will drop by 7% over 2015/16, with multi-unit developments to bear the brunt of the fall.

HIA senior economist Shane Garrett said the fall is set to occur despite the fact that current interest rates and migration are supporting high levels of construction, as inefficient taxation, planning and land release policies constrict new development opportunities.

“The effect of these supply bottlenecks will become apparent over the next 12 months, with the volume of new home building projected to decline by 7.0% during 2015/16,” Garrett said.

“During the upturn, multi-units accounted for an increasing proportion of new home building. Consequently, the multi-unit segment will see larger rates of decline over the coming years compared with the detached house segment,” he said.

A further fall in commencements of 8.6% is forecast for 2016/17.

According to the HIA, 2014/15 saw a total of 214,450 new dwelling commencements, the highest yearly total on record, but that peak is expected to become a trough over the next five years.

“HIA projects that new home building will bottom out at around 175,000 per year towards the end of the decade,” Garrett said.

“Critically, this falls short of Australia’s long term requirements and emphasises the importance of reform around taxation and housing supply policy.”

While construction levels are set to fall in coming years, the HIA is predicting an uptick in renovations through to 2018/19.

A 4.6% increase in renovations activity is forecast for 2015/16, followed by growth of 0.4% during 2016/17, that will be followed by growth of 2.4% in 2017/18 and 4.1% growth in 2018/19.

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