Deloitte Access Economics (DAE) has predicted that housing construction in Australia will get “worse before it gets better”.
DAE’s quarterly business outlook suggests that while the damage inflicted on the economy from COVID-19 has eased, the impact is expected to persist in 2021.
However, Australia is one of five nations that will enter 2021 in a strong position due to low COVID-19 cases and the introduction of a vaccine.
DAE’s outlook expects that housing construction will bottom out by mid-2021, with about 37,000 housing starts and will recover to 50,000 by 2023.
By mid-2023, DAE also anticipates the unemployment rate will drop to 5.5 per cent.
“COVID numbers are very low, the vaccine news is excellent, confidence is rebounding, Victoria is catching up to the recovery already underway elsewhere, there are heartening developments in job markets, and China’s trade war with Australia has – so far at least – actually added to national income rather than hurt it,” DAE stated.
According to DAE, Victoria will experience the highest economic growth out of all states and territories in 2021 at 5.3 per cent after having the worst economy in Australia in 2020, while national wage growth is expected to increase by 1 per cent.
House prices are rising due to low interest rates and support packages, while construction activity is falling.
“As is true in pandemics past, the cost of credit goes down and stays down,” DAE stated. “Both fixed and variable rates have fallen substantially from pre-COVID levels.
“And the Reserve Bank is promising, hand on heart, to keep them low for years to come, thereby generating additional confidence for housing markets.”
Oversupplied markets, high debt and unemployment, and fear about the rollback of government incentives such as JobKeeper are adding to the decline in construction activity, DAE said.
“Despite ongoing hassles with COVID cases and the upcoming logistical and political challenges of vaccine rollout, 2021 looks set to continue the recovery in sectors smashed by the lockdowns and border closures of 2020,” Deloitte stated.