Dwelling commencements

IBISWorld forecasts the number of dwelling commencements to climb by 7.2% in 2024-25, to 170,168. This growth is expected to be driven mainly by recovering multi-unit commencements as rebounding migrants are set to support demand for apartments and multi-unit residences. While a large construction backlog will support dwelling commencements, labour and material shortfalls will keep construction costs elevated, placing downward pressures on dwelling commencements. Higher interest rates are encouraging consumers to save more money, reducing housing investment and demand for new detached homes. Elevated land costs and taxes are also constraining recovery in detached house commencements.

Australia's growing population has supported many dwelling commencements over the past decade. Growth in residential housing prices in 2015-16 contributed to high levels of dwelling approvals and commencements. Developers sought greater returns on their developments, which drove more high-density and affordable dwellings like apartments. Nonetheless, the closure of Australia's international border from March 2020 to February 2022 because of the pandemic caused a collapse in net migration. Likewise, falling business confidence and limits on foreign investment led to a sharp fall in demand for new dwellings. Government stimulus has partially supported demand, primarily through the Federal Government's HomeBuilder scheme, which was implemented to support the residential construction sector. The number of building approvals surged for detached homes after the HomeBuilder scheme's introduction and the effects filtered through to dwelling commencements. Besides, low interest rates and further government stimulus, like the JobKeeper payment package, uplifted real household discretionary income, which contributed to increased dwelling commencements in 2020-21.

Residential housing prices declined from December 2017 through 2019 in response to increasing macro-prudential regulation and foreign ownership restrictions, with building approvals and dwelling commencements also tapering off. Furthermore, the large and rapidly rising number of new apartment developments created a significant supply of inner-city apartments, particularly in Melbourne, Sydney and Brisbane. Lower demand made apartments more difficult to sell, slowing the number of dwelling commencements since the start of the period. This is despite the Reserve Bank of Australia (RBA) cutting the cash rate to record lows during the pandemic. Dwelling commencements over the three years through 2023-24 fell sharply. The RBA increased the cash rate and inflated construction costs, which contributed to falling demand. Supply chain disruptions, though now improving, have limited the availability of critical materials like timber. Labour shortages in the construction sector have increased labour costs and slowed construction activities. These factors have escalated building costs and postponed construction timelines. Overall, IBISWorld forecasts the number of dwelling commencements to contract at a compound annual rate of 0.3% over the five years through 2024-25.