New home construction in Australia plunges, putting housing targets at risk

Higher interest rates and the war in the Middle East have smashed Australia’s efforts to lift housing supply.

Fresh figures released by the Australian Bureau of Statistics show dwelling commencements, completions and homes under construction stalled in the March quarter – before the contentious budget negative changes were announced.

Total new home starts fell 11.2 per cent over the quarter to 48,012 dwellings.

The biggest drop was in high density housing which slumped 19.8 per cent in the first quarter of the year, to just 19,116.

Detached house starts dropped 3.5 per cent to 27,658 homes.

Although even with the weak March quarter, completions are still up 0.8 per cent compared to this time last year.

The March quarter puts Australia even further behind its ambitious housing accord targets of adding 1.2m new properties in the five years to 2029.

To meet this target Australia needs to be building approximately 60,000 new homes every quarter.

Master Builder Australia chief economist Shane Garrett says the construction industry was hit by a combination of rising interest rates and the Middle East war.

“Home building activity has been hurt by escalations in building costs and continued shortages of skilled tradies,” he said.

“Construction demand across housing, non-residential building and civil have all been squeezed by higher interest rates,” Mr Garrett said.

Meanwhile Master Builders Australia’s chief executive Denita Wawn warns of further pain for the sector thanks to the government’s latest budget.

The budget, framed by Treasurer Jim Chalmers as a response to housing stress and growing inequality, as it looks to take some of the tax burden off workers and move it towards those with assets.

The changes unveiled in the federal budget scaled back negative gearing, restricting it to new builds in a bid to steer investor cash away from bidding up existing family homes and redirect it into building new supply.

The Albanese government also scrapped the flat 50 per cent capital gains tax (CGT) discount in favour of an inflation-adjusted indexation system with a 30 per cent tax floor.

“The ABS figures show building activity remains below the level needed and, at the same time, builders are telling us that uncertainty created by the federal budget is affecting confidence and slowing investment decisions,” Ms Wawn said.

“This uncertainty means some builders will think twice before proceeding with new projects. In some cases, projects may be delayed, scaled back or not proceed at all.

“Australia cannot afford policies that make it harder to attract investment into construction when we need to deliver more homes, transport infrastructure, schools, hospitals as well as energy and Olympic projects over the next decade.