Call Us Today! (07) 54 52 79 79

Residential Construction Outlook Low rates and stimulus to boost construction

Residential construction turns on low mortgage rates, high demand and First Home Owners Boost.
Public and private sector residential commencements expected to rise strongly over next two years.
Population growth of 2.1%, or 443k, in the year to June 2009 continues to lift housing demand.

Residential construction set to rise over the next few years. Construction lending data has rise sharply from the lows of the past year. Population growth is running at 439k. We expect dwelling commencements to be around the 160k level in 2009/10. First home buyer grants to boost construction of dwellings, lifting supply. State construction levels could remain divergent. Residential construction The private and public residential sectors are set for a major boost in construction spending over the next few years. Construction lending data has risen sharply from the lows of the past year.It will follow a particularly weak outcome for residential construction in 2008/9 of 131k new dwellings. That is significantly below CBA’s estimate of underlying housing demand, based on population growth, of 185k. Population growth is running at 443k (or 2.1%pa) in annual terms, driven by high levels of net migration. Population growth, driven by net migration, is assumed to remain high.
The after effects of the 50-year low in mortgage rates and the First Home Owner Boost should see new housing construction rebound strongly over the next few years. We expect dwelling commencements to be around the 160k level in 2009/10, rising to 184k in 2010/11.

First home buyer activity is seen as the initial driver of the pickup in construction activity. Since the introduction of the boosted first home buyers’ grant and cuts to interest rates, the number of first home buyers has nearly doubled. Rising house prices are rebuilding wealth and supporting consumer confidence and should add to the construction surge as some owners of existing homes decide to build new dwellings.
Public sector dwelling construction is also rising strongly with funding from the Federal Government. State construction activity levels could remain divergent over the next few years. Victoria has been performing strongly despite higher mortgage rates. NSW construction has been sliding for the past 5 years but should stabilise and rise gradually in 2010.

Source Commonwealth Bank Research

Leave a Reply