‘Unprecedented shock’ halts work on 16,400 new homes
“It’s quite an unprecedented shock to the system,” he said.
Since May last year, the Reserve Bank has hiked interest rates 11-fold, putting pressure on many builders’ balance sheets and dampening buyer demand. Property values in Sydney have fallen more than 10 per cent over the past year, adding to the uncertainty among home builders.
“A developer might think that each unit in a project would cost $300,000 two years ago when they planned it, but now it’s going to cost them $450,000, and at the same time, home prices have fallen,” Rawnsley said. “So the developers say, ‘This is going to cost me a lot more than I thought it would and I won’t be able to sell it for as much as I want, so let’s just try to survive.’ I’ll come back to that when the market stabilizes.’”
Earlier this week, the Australian Construction Industry Forum (ACIF), the governing body, said it expected a slowdown in new home construction “over the course of this year and in the short to medium term” and the loss of thousands of construction jobs, mainly in residential construction.
The postponement of housing projects threatens to exacerbate Sydney’s critical shortage of rental properties, which has caused asking rents to rise sharply over the past year. At around 1.4 percent, the rental vacancy rate in the city is close to its low for ten years.
Rawnsley said the increase in homes approved but not yet started was due to housing projects that are relatively complex and require large upfront investments.
“If you build 50 homes and each one is 30 percent over budget, the cost overrun is much larger than with smaller housing projects,” he said.
Rawnsley said regulations that force developers to finish late homes risk putting even more pressure on the already strained sector.
However, once housing market conditions improve, the large pool of approved homes “can be delivered quickly,” Rawnsley said.
In Victoria, nearly 10,500 homes were approved but not yet under construction at the end of March 2023, more than double the number a year earlier.
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