While the market continues to be strong for building or buying new dwellings, greater growth lies ahead.

On the heels of a 2.7 per cent increase in loans in November for building or buying new dwellings, Housing Industry Association (HIA) chief economist Dr Harley Dale says new-home growth will support the wider economy this year.

On a moving annual basis, the value of lending for construction investment has reached a record level.

“The new-home lending cycle has peaked, but the November results confirm that the elevated volumes of lending we have seen over the past three and a half years were still in play as the year neared an end,” says Dale.

Compared with 12 months previously, the number of loans for building and buying new homes increased in five out of eight states and territories in November. The fastest annual growth was in Tasmania (28.4 per cent), followed by Queensland (20 per cent), South Australia (11 per cent), New South Wales (9.9 per cent) and Victoria (9.6 per cent).

A drop in the number of loans in November was seen in the Northern Territory (down 57.9 per cent), the Australian Capital Territory ( down 23.3 per cent) and Western Australia (down 9.5 per cent).

More ahead

IbisWorld’s report House Construction in Australia (November 2016) indicates greater growth coming up in the next five years, rising from the current 0.9 to 2.4 per cent.

As a sector, however, the house-building industry is in decline, IbisWorld suggests, with the trend moving to higher-density living such as apartments and townhouses, driven by population growth, lower entry costs and the desire for inner-city lifestyles.

Driving demand in the short term is mortgage affordability, job security and government policy, with influence from demographics, the age of the existing housing stock, and buyer preference.

First-home buyers are expected to account for about a quarter of the market, with two-thirds of private-sector investment by second-, third- and fourth-time home buyers.

Hot spots

Victoria and Western Australia have been the two growth hot spots over the past five years.

“Victoria has accounted for a disproportionately large share of the national new-housing construction market over the past five years,” says the IbisWorld report. “This reflects several factors, including Victoria’s relatively strong pace of economic growth, a reversal of the trends in net interstate migration outflow, strong trends in international immigration and the strong preference for traditional housing in Melbourne.”

The state’s 28.4 per cent share of national single-unit housing construction value outweighs its 25 per cent share of national population, the report says.

In terms of home-building businesses, the sector is fragmented, with the top four home builders accounting for less than 10 per cent of the industry’s annual revenue. Metricon leads with a market share of just 2.3 per cent, while franchise chain Hotondo Homes has an estimated market share of 0.8 per cent.

“The emergence of franchise arrangements points to a potential revolutionary change in the nature of industry competition,” says report author Anthony Kelly. “Hotondo and GJ Gardner Homes have established themselves as the leading home-building franchisors.’

More than half of the industry’s enterprises earn less than $200,000 in revenue, with fewer than 10 per cent generating more than $2 million.