Falling construction activity is on track to create another housing shortage that would make it even harder for first home buyers to claw their way into the market.
Figures released from the Australian Bureau of Statistics Wednesday revealed new housing commencements in NSW dropped to the lowest level in five years over the September quarter – the latest period with available data.
There was also a 34 per cent drop in new construction activity compared to the year prior, with new unit project starts falling 43.1 per cent and detached house starts falling 26 per cent.
Property experts warned further falls in activity, coupled with strong population growth and demand for new housing, could usher in another housing shortage within 18-24 months and put pressure on buyers to offer higher prices.
It would also prolong the time it takes home seekers to secure properties.
REA Group economic research manager Cameron Kusher said there were plenty of new developments being completed but many were commenced years ago.
The recent falls in new projects suggested “things were starting to turn a corner” and new developments would become rarer in coming years, he added.
“Developers have been pulling back. It was more difficult for them to get financing for their projects … if this continues there will be a shortage,” Mr Kusher said.
Master Builders chief economist Shane Garrett said the fact that the biggest drop on development commencements was in the high-density sector suggested there may some “reputational issues around apartments”.
Last year there were numerous incidents of residents being forced to evacuate apartment blocks due to dangerous building defects, including the Opal Tower in the Olympic Park area and Mascot Towers in Sydney’s south.
Housing Industry Association economist Geordan Murray said the September drop was reflective of weak housing market conditions in early 2019.
Demand for new housing was low at the time because banks still had strict limits on financing – especially for investors, who often accounted for the bulk of pre-sales in new developments.
Pre-sales are often vital for launching new housing because it makes it easier for developers to finance their projects.
Sydney home prices are expected to increase another 10 per cent this year, according to projections from SQM Research. Prices have already grown 6 per cent in the last three months.