Despite signs of a potential 2022 cash rate increase, Australia’s residential construction activity is set to continue its upswing until 2023.

According to the latest report from the National Housing Finance and Investment Corporation (NHFIC), completions are expected to average 183,700 until 2023.

“Record low interest rates combined with state and federal government stimulus continue to drive a strong upswing in construction activity,” the report said.

Victoria is expected to post the highest number of completions until over the three years to 2023 at 167,400, followed by 147,400 in New South Wales, and 111,200 in Queensland.

“Detached dwellings are leading the cycle, aided by the temporary boost from HomeBuilder and other state support.”

Meanwhile, the NHFIC said construction activity for medium-density housing and apartments, which is the hardest hit during the lockdowns and border restrictions, is starting to increase.

However, the report noted that at some point, a downswing will take hold as interest rates continue rise.

Home loan fixed rates for both owner-occupiers and investors are already rising, and several experts have already called for a rate hike by as early as June this year despite the Reserve Bank of Australia (RBA)’s guidelines that it would maintain the cash rate at its historic low until 2024.

“RBA forward guidance at the time of writing is used in our modelling, with the downturn in construction beginning in 2024 and net completions falling from 194,100 in 2022–23 to 127,100 in 2026–27,” the report said.

After a trough in 2026-27, completed construction projects are expected to gradually increase start a new upswing that could reach 186,000 by 2031-32.

Photo by @josholalde on Unsplash


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