Rising house and land prices have led to more homebuyers choosing higher density dwellings, such as apartments and townhouses. However, the Federal Government’s HomeBuilder scheme has helped stimulate investment in singe-unit housing and home renovation in 2020-21. Most large-scale apartment developers do not have the financial mechanisms to facilitate the scheme’s application process.
A house divided
The COVID-19 outbreak in the first half of 2020 led to an activity slump in the House Construction industry, with industry revenue declining by 7.5% in 2019-20. However, strong demand in response to the HomeBuilder subsidy is anticipated to boost revenue by 10.6% in 2020-21. Industry players, such as Metricon Homes are anticipated to strongly benefit from this renewed demand as the economy rebounds from the negative effects of the COVID-19 pandemic. Metricon Homes specialise in constructing homes for first-home buyers to dual occupancy, duplex and luxury homes. In particular, the HomeBuilder scheme has helped limit the adverse effects of the COVID-19 outbreak for the House Construction industry. As a result, industry revenue is expected to rise at an annualised 1.1% over the five years through 2020-21, to $65.6 billion.
Strong competition has contributed to several long-standing building firms exiting the industry over the past five years. For example, Home Australia Pty Ltd's collapse in 2016 resulted in Homestead Homes in South Australia being sold, and Huxley Homes in New South Wales closing. In 2017, Victorian Watersun Homes (WSH Group Pty Ltd) and Queensland Builder One Homes Pty Ltd went into administration and liquidation. Nevertheless, industry participation has risen over the past five years. Enterprise numbers are expected to increase at an annualised 1.0% over the five years through 2020-21, despite a noticeable fall in enterprise numbers in 2019-20 attributable to the poor demand conditions brought about by the COVID-19 pandemic.
Building up
The rising prevalence of Australians opting to purchase inner-city, multi-unit apartments and townhouses without high residential land costs have benefited firms in the Multi-Unit Apartment and Townhouse Construction industry over the past decade. However, industry activity has declined sharply in recent years as major apartment developments have been completed and the COVID-19 outbreak led to property developers deferring or cancelling large-scale apartment projects.
Multi-unit apartment and townhouse developers have struggled with high vacancy due to the COVID-19 pandemic. Other factors contributing to this trend include:
- Economic uncertainty during the COVID-19 outbreak limiting consumer spending
- A fall in foreign investment in response to major local banks limiting foreign lending
- State governments increasing taxes on foreign real estate purchases
- Decreased demand due to continued international border closures
As a result, revenue for the Multi-Unit Apartment and Townhouse Construction industry is anticipated to contract by 24.6% during the current year. This heavy fall is expected to contribute to revenue declining at an annualised 7.0% over the five years through 2020-21, to total $35.1 billion.
Major players in the industry such as BBP Australia Holdings Pty Ltd, trading as Multiplex, already have major projects underway. Multiplex’s current major developments include work on two multiuse towers at 308 Exhibition Street in Melbourne, and The One, an 84-storey apartment development in Brisbane, which is due for completion in late 2021. Similarly, J Hutchinson Pty Ltd trading as Hutchies is currently completing the $211 million major apartment development The Langston in Epping, Sydney. While larger industry players will be able to continue with less uncertainty as the economy slowly recovers from the COVID-19 pandemic, other companies with lower market share may might struggle for the remainder of 2021.
Home run
The Multi-Unit Apartment and Townhouse Construction industry is forecast to rebound over the next five years, as the economy gradually recovers from the COVID-19 pandemic. However, current excess stock conditions are projected to dampen investor confidence in the apartment property market. The stock of unsold apartments will likely fall due to stronger population growth, as net migration numbers surge when Australia's international borders reopen. Industry revenue is forecast to increase at an annualised 9.6% over the five years through 2025-26, to $55.6 billion.
Demand for housing will also likely be supported by continued low interest rates, although mortgage affordability is projected to continue deteriorating over the next five years. Demand for the House Construction industry is projected to contract over the short term, as government support schemes, such as the HomeBuilder subsidy, and the JobKeeper and JobSeeker supplements, have come to an end. The number of households is forecast to grow at a stable annualised 1.5% over the five years through 2025-26, further supporting demand for new housing. Revenue for the House Construction industry is anticipated to rise at an annualised 1.9% over the five years through 2025-26, to $72.0 billion.
IBISWorld industry reports mentioned in this release:
House Construction industry in Australia
Multi-Unit Apartment & Townhouse Construction industry in Australia
BBP Australia Holdings Pty Ltd
J Hutchinson Pty Ltd
