Builders are beginning to feel the impacts of a decrease in new home construction caused by the rising cost of materials and mortgage costs. 

Australian Bureau of Statistics data shows the number of private dwellings commenced dropped from more than 42,000 in the June 2021 quarter to less than 23,000 in the September 2023 quarter.

Managing director of GJ Gardner Homes in SA’s South East, Rod Dohse, said sales in 2023 were down from the highs of previous years and below that of an average year.

“There’s a lot of talk around interest rates and how that’s affected consumer confidence and particularly the housing market,” Mr Dohse said.

“But one of the the big things that has seriously affected the ability for particularly young people to buy in is the costs that we have seen come through in the past 18 to 24 months.

“Your average home that a first home owner would have purchased prior to COVID [compared] to the cost of purchasing that same home now has jumped by $50,000 to $70,000.”

GJ Gardner Homes South East SA managing director Rod Dohse had fewer project commencements in 2023.(ABC South East SA: Josh Brine)

Delayed impacts hitting builders

Housing Industry Association senior economist Tom Devitt said there had been a lag on builders and suppliers feeling the impacts of fewer new projects.

“At the moment, there’s still quite a bit of work under construction from previous years, especially during the pandemic,” he said.

“But that pipeline is now shrinking quite rapidly as a result of the reduced levels of new work entering the pipeline.

Some projects already planned are also being put on hold or cancelled.

“Especially in the multi-unit market, with units and townhouses running into material and labour constraints, and finance constraints, a lot of those projects are being put on hold,” Mr Devitt said.

“What we’ve noticed in our own surveys of the industry that a lot of houses that have already been previously sold are actually having to be cancelled.

“Banks are finding themselves unwilling to lend for projects where costs have increased so much since the initial contract was signed.

“A lot of potential new home buyers are being squeezed out of the market.”

CFMEU’s Brad Coates says demand for structural timber has decreased.(ABC News)

Construction Forestry Mining and Energy Union manufacturing division Greater Green Triangle district secretary Brad Coates said the slowdown was beginning to have flow-on effects on the timber industry.

“Mortgage stress out there in the community is real, so some people who had planned to build houses have put them on hold because they’re not quite sure what’s going on,” he said.

Despite that, Mr Coates said the timber industry — at least in South East SA and Victoria’s south west — was “buoyant”.

“We’ve seen unparalleled investment in all of the major manufacturing facilities here, and they’re still employing,” he said.

Hopes higher for 2024

Mr Dohse said inquiries had begun to increase again, as the economic outlook became more positive.

However, he said more support was still needed, particularly for first homebuyers, to meet the increased material costs.

“At the moment there is still $15,000 available [in SA], but really that’s just nothing,” he said.

“Double or triple that would be the sort of money that they’re going to need to get a start.”

A slowdown in construction is impacting demand for materials.(ABC Tropical North: Melissa Maddison)

Mr Devitt said he believed more structural reforms were needed.

“There was a lot of stimulus early in the pandemic from the government with the Home Builder grant, but also the Reserve Bank dropped interest rates to the floor early in the pandemic,” he said.

“So that really created that explosion of demand for new housing in 2020, 2021 and into 2022, but it very much turned a corner the moment the Reserve Bank started increasing interest rates.”

Mr Devitt said stamp duty needed to be reformed, especially how it was imposed on foreign investors who were particularly important for investing in new supply.

“Land needs to be released faster as well. It can sometimes take over 10 years [to get] the unzoned land into a state where it’s shovel-ready,” he said.

“One of the other things the HIA is really  pushing for is for lending restrictions to be loosened so that first homebuyers and those with lesser deposits and incomes are also able to enter the market.”

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