Home National housing Cost hyperinflation is blowing up Australian homebuilders

Cost hyperinflation is blowing up Australian homebuilders

0

Last month, the Australian Bureau of Statistics (ABS) released Consumer Price Index (CPI) data showing new home prices soared a record 20% in the financial year 2021-22:

Extreme cost inflation is pushing up new home prices.

On Tuesday, ABS data on housing approvals for July showed the average cost of a new home soared to $406,000, up $80,000 (25%) from its level of before the pandemic:

Average cost of a new home

Hugh Hartigan, head of research at the National Housing Finance and Investment Corporation, said that “the cost of several construction inputs such as lumber, plywood and wooden windows have all increased by more than 30% over the past year. over the past year, reflecting the difficulty of supply. constraining conditions under which manufacturers and developers work”.

Inflation above cost inflation is the main reason so many Australian homebuilders have gone bankrupt this year.

Ultra-low interest rates and the Morrison government’s HomeBuilder stimulus led to thousands of fixed-price construction contracts being signed. Then the cost of key building materials, such as steel and wood, skyrocketed due to global supply constraints. As a result, builder margins turned negative.

The end result is builders working hard, bleeding money at an alarming rate, pushing many into insolvency. It is therefore a “deficit” boom for the industry.

The longer term implications are worrying given that this could leave Australia with reduced building capacity at the same time as the Albanian government accelerates immigration (housing demand) to record levels.

Indeed, Hugh Hartigan, head of research at the National Housing Finance and Investment Corporation, believes that rapidly rising interest rates, high costs and supply constraints mean there is a “significant downside”. its forecast of around 550,000 new homes over the next three years. mid-2024.

It’s a disaster in the making.

Unconventional economist
Latest articles from Unconventional Economist (see everything)