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New home building hits highest level in more than 20 years

New home building surged to its highest level in more than 20 years in the December quarter, with the Housing Industry Association attributing the rise to the Federal Government’s HomeBuilder program.

The number of new houses that commenced construction in the three months to December was the second-highest on record, according to HIA’s Chief Economist Tim Reardon.

“House commencements surged by 27.0 per cent in the final quarter of 2020 to their highest level since March 2000,” Mr Reardon said.

“This record level of investment in new home building occurred six months after the announcement of the HomeBuilder program.”

He also noted that the increase in commencements occurred across all jurisdictions.

Western Australia experienced the biggest rise in new house starts in the final quarter of 2020, with the number of new houses commencing construction more than doubling (a 108.5 per cent rise). 

This was followed by the Northern Territory, where there was a 51.7 per cent increase, and Queensland, which recorded a 33.2 per cent rise in new house construction.

NSW new house construction was up 21.2 per cent for the quarter; by 13.1 per cent in South Australia; 11.7 per cent in the ACT; 9.9 per cent in Victoria; and 5.8 per cent in Tasmania.

“The record volume of home building will continue to retain jobs and absorb workers from across the rest of the economy,” Mr Reardon said.

Despite the spike in new construction, Mr Reardon said the HIA didn’t expect new commencements to reach their peak until the middle of this year.

“This will see a very strong level of building activity into the middle of 2022,” he said.

Earlier this year, the HIA predicted there would be a record number of new houses built in 2021, forecasting the commencement construction of almost 130,000 new detached houses. 

Mr Reardon acknowledged that demand for detached housing had also been buoyed by record low interest rates and population shifts from metropolitan centres to regional areas.

“The sudden realised potential of working from home has opened up new areas for housing demand that previously may have been considered too distant,” he said.

The segment of the market that has driven the bulk of demand for new housing construction has been first-home buyers, who have accounted for more than 40 per cent of all loans in recent months.

This contrasted with the investor-driven demand of the previous cycle, Mr Reardon said.

According to the HIA, multi-unit starts had a more modest increase of 4.6 per cent in the final quarter. 

“This sector is still a long way down from its previous peaks and needs an injection of overseas migrants, students and tourists if it is to contribute more to Australia’s economic recovery,” Mr Reardon said.

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