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We’ll be lucky if things are only this bad

The construction crisis goes from bad to worse.

I’m a little surprised more people aren’t talking about this.

We are supposedly in the middle of what is possibly the worst housing crisis in the country’s history, and construction levels are collapsing.

At a time when we should be building more houses than ever, it looks like we’re going to build less houses than a decade ago.

That is all kinds of backwards.

Recent data from the Housing Industry Association (HIA) showed us that loans for purchasing or constructing a new home remained near record low levels in December:

The HIA is worried

“The steepest RBA rate hiking cycle in a generation has compounded the elevated costs of home building, seeing potential home buyers squeezed out of the market and fewer new homes commencing construction”, HIA Senior Economist Tom Devitt said.

“This lack of new work means the pipeline of new housing supply approaching completion is now shrinking rapidly”.

“At this rate, Australia will not commence enough housing to meet National Cabinet’s target, falling well short of the 1.2 million new homes they want to see built in the next five years”…

The construction industry has been in trouble since COVID hit. Initially it was about the explosion in material prices and construction costs. But most recently, it’s been the recent round of aggressive rate hikes that has taken a toll:

“Since the RBA’s first cash rate increase in May 2022, sales of new homes have tumbled. A number of earlier projects are also being cancelled, with banks withdrawing finance in the face of soaring building costs and shrinking homebuyer borrowing power”.

“This lack of new work entering the construction pipeline is expected to produce a trough in new house commencements in 2024, when Australia will start construction on just 95,400 new houses, the weakest year in over a decade”.

“As fewer new projects begin construction, the pipeline of work that Australia’s home builders have under construction is expected to shrink rapidly this year”.

“At a time of record population growth and acute shortages of rental accommodation, a dwindling supply of new homes threatens to worsen Australia’s housing crisis”, Devitt said.

And this is at a time when construction companies are still caught in the fixed-price pincer, and are going bankrupt at an alarming rate.

Most recently we lost one of Australia’s largest construction companies, St Hilliers:

“St Hilliers – a 34-year-old apartment, commercial and infrastructure building company – has told sub-contractors not to come into work at 21 work sites, with seven entities within the group now in administration”.

“WLP Restructuring partners Glenn Livingstone and Alan Walker were appointed on Sunday as voluntary administrators of St Hilliers Contracting, the company’s construction division”.

“Its key projects are in Sydney, Brisbane, Townsville and Perth”.

At this rate we’ll be lucky if we post the worst results in a decade. We could easily see the worst results in a generation.

All at a time when construction levels should be booming.

No wonder house prices are set to explode.

DB

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