The challenging environment for residential builders and consumers continued over the last quarter with record interest rate hikes further squeezing builder margins and slowing consumer demand.
Porter Davis Group’s recent insolvency, the 12th largest home builder in Australia, further highlighted the impact that the tight supply of materials and labour, combined with fixed price contracts and a weakening forward pipeline is having on the sector. The developments have also reinforced the importance of consumers ensuring domestic building insurance is in place before handing over any deposit to build a home or for renovations valued above $16,000. For more details about the protections, don’t miss our latest article: Understanding Consumers Risk and Insurance in Australia’s Home Building Market.
In welcome news for consumers impacted by the collapse, on April 20th, Victorian Premier Daniel Andrews announced the Victorian Government will help to reimburse deposits paid to Porter Davis.
Whilst the building industry welcomed the Reserve Bank’s April pause in cash rate hikes, this was short-lived respite with the RBA raising its cash rate 25 basis points on 2 May to 3.85%. Industry commentators anticipate tighter times will continue for at least the next 6-12 months. Having said this, commentators are hopeful that forward demand will start to pick up thereafter. The industry is looking to the Federal Government to stabilise inflation and interest rates to firm up consumer and business confidence.
Australia’s net migration forecasts are expected to impact Australia’s housing shortage and amplify home building demand. In late April the Government increased its net migration forecast for 2022-23 to 400,000, which would be the highest annual net migration in Australia’s history.
All considered, Australia will fall short of its housing needs between 2023 and 2027 by 106,300 dwellings, according to a report released last week by the National Housing Finance and Investment Corporation. With the body forecasting just 138,000 new houses will be built in 2023, a far cry from the 200,000 per year the Federal Labour Government need to realise their goal of 1 million houses in the next five years, the Government will need to work with industry to find solutions to supply issues and ease the burden of regulatory complexity.
From 1 October 2023 – under the National Construction Code - the new liveable housing requirements, new energy efficiency and condensation mitigation requirements will commence in Victoria and Tasmania. These changes will help to enhance the comfort and liveability of new homes; however, they will naturally increase building costs.
The residential building industry is a vital sector in Australia’s economy, and it is often used as a barometer of its health. Managing risk and insurance is one important element both for businesses in the building industry and consumers undertaking home building or renovation activity.
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