Higher interest rates and war in the Middle East have stymied Australia’s efforts to increase housing supply.
Fresh data released by the Australian Bureau of Statistics shows housing starts, completions and construction stalled in the March quarter – before controversial negative budget changes were announced.
Total housing starts fell 11.2 percent in the quarter to 48,012 units.
The biggest drop was in the high-density housing sector, which fell 19.8% in the first quarter of the year to 19,116 units.
The number of new single-family homes fell 3.5 percent to 27,658 homes.
Although even despite the weak March quarter, the volume of completed projects was still up 0.8 percent compared to the same period last year.
In the March quarter, Australia fell further behind its ambitious Housing Agreement targets of adding 1.2 million new properties in the five years to 2029.
To achieve this target, Australia needs to build approximately 60,000 new homes every quarter.
Master Builder Australia chief economist Shane Garrett says the construction industry has been hit by a combination of rising interest rates and war in the Middle East.
“Homebuilding activity has been hit by rising construction costs and a continuing shortage of skilled tradespeople,” he said.
“Demand for residential, non-residential and civil building construction has declined due to higher interest rates,” Mr Garrett said.
Meanwhile, Master Builders Australia chief executive Denita Vaughn warns of further challenges for the sector due to the government’s latest budget.
The budget, drawn up by Treasurer Jim Chalmers as a response to housing stress and rising inequality, aims to take some of the tax burden off workers and shift it onto those with assets.
The changes introduced in the federal budget reduced negative gearing by limiting it to new builds only, in a move to divert investor money away from bidding on existing family homes and redirect it towards building new properties.
The Albana government has also scrapped the flat 50 per cent capital gains tax (CGT) allowance in favor of an inflation-adjusted indexation system with a minimum tax rate of 30 per cent.
“ABS data shows that construction activity remains below necessary levels, while at the same time builders tell us that the uncertainty created by the federal budget is affecting confidence and slowing investment decisions,” Ms Vaughan said.
“This uncertainty means some builders will think twice about taking on 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 construction investment when we need to build more homes, transport infrastructure, schools, hospitals and energy and Olympic projects over the next decade.