How housing affordability is impacting renovation activity

HIA Senior Economist, Tom Devitt shares insights on the current state of the housing industry in Australia. Specifically, he touches on housing affordability in Australia and its implications for the Australian housing market as it stands today, particularly how this is now affecting the number of new builds vs. renovations as the renovation market is predicted to increase and be the driver for the building industry in coming years.

Why? Here are the key takeaways from Tom’s article:

• A global shortage of home building materials caused prices to increase by a third, with a significant portion of this rise occurring in the 2021/22 financial year.
• The shortage of skilled tradespeople in Australia has driven up labor costs, resulting in a substantial increase in the cost of building new houses.
• Land prices have also risen, as people seek larger lot sizes and more living space.
• Various policy decisions and factors, including planning restrictions, land release processes, taxes, and financial regulations have compounded housing costs.
• The tightening of monetary policy by the Reserve Bank has made building and financing new houses more expensive.
• Affordability pressures are affecting the price of existing homes, which are on the rise again.
• Despite rising interest rates, the strong fundamentals in the housing market could push existing home prices to all-time highs by the end of the calendar year.
• The lack of new home sales is expected to result in the weakest year of new house commencements in over a decade. Despite this, consumers are still turning to renovations as a more affordable alternative to home improvement.

What does this mean for the building industry?

Renovation activity is likely to remain robust, given the current constraints in the new and existing home markets. To delve deeper into the insights, read the full article here.