Home construction is up but still well short of government targets

A surge in homes built last quarter has failed to get the government back on track for its 1.2 million homes target as experts warn the deteriorating economic conditions threaten to slow down future housing projects.

The Australian Bureau of Statistics released its quarterly building activity data on Wednesday, showing a boost to the number of homes that began construction and the number of projects finished in the June quarter.

But it also showed Labor remained almost 100,000 short of the homes needed to reach its target of building a record number of dwellings over five years – a key plank in its plan to tackle the housing crisis and get more first home buyers into the market.

The number of homes, including houses and apartments, that began construction in the June quarter rose 7 per cent to 52,201. Homes that were completed rose 5.8 per cent to 47,168.

But the home building sector has this year been hit by a series of interest rate hikes, higher construction prices due to the Middle East war and uncertainty prompted by the May budget’s housing tax changes which are yet to properly flow through to the figures.

KPMG urban economist Terry Rawnsley said the uptick in commencements and completions showed Australia was trending in the right direction, and a record number of more than 240,000 houses under construction would enter the market over the next year or so.

“Developers are seeing that prices are softening, their holding costs are increasing… so they’re probably on the bike pedalling as fast as they can to complete projects and get them into the market,” he said.

But projects starting today would be more expensive because they break ground after the start of the US’s war on Iran, which has increased oil costs, he said.

“This is probably as good as it’s going to get for the foreseeable future,” he said.

Housing Industry Association chief economist Tim Reardon said the 52,000 commencements in the quarter would not be enough to keep up with demand.

“There hasn’t been a material increase in the volume of new home building over the past decade, we’re still building a similar volume … despite the pick-up that we can see in today’s data, it’s about average for recent decades,” he said.

“We have not built enough homes in the past year to meet growth and demand, and we don’t anticipate that in the next 12 months we’ll build enough homes to meet the growth in demand.”

Reardon said the number of houses would probably continue to rise in the September quarter because of the strength of the market coming into 2026, but they could start to fall by early 2027.

“What today’s data shows us is just how much momentum there was in the housing market coming into this year,” he said. “That growth isn’t going to be sustained, and that we won’t see an increase in home building activity in 2027.”

The association estimates the failure to hit the government’s housing targets has left an $11 billion “black hole” in the finances of state and territory governments because not enough stamp duty and GST was collected over the two years since the target was set.

Had the target been on track, the construction would have generated $45 billion in economic activity and potentially housed 242,160 Australians based on average household sizes, the housing association said.

House prices in Australia have fallen by about 5 per cent since March and the broad-based downturn has already forced state governments to slash forecasts for expected stamp duty revenue.

Treasurer Jim Chalmers and Housing Minister Clare O’Neil released a statement on Wednesday welcoming the June quarter increase in dwelling starts and completions.

“These are encouraging numbers, but we know they can bounce around from quarter to quarter and that there’s more work to do,” it said.

“We are tackling housing supply from all angles, including funding enabling infrastructure, building 55,000 social and affordable homes and working with states and territories to streamline approvals.”

Master Builders Australia chief executive Denita Wawn said the outlook for new projects was increasingly challenging.

“The cumulative impact of the federal budget, continued interest rate increases and an ongoing global uncertainty have deteriorated the environment.”

She said the “flat result” for higher density housing revealed by the latest figures was concerning because strong growth in that type of residential construction was needed it Australia is meet its housing targets.

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