Slowing home building will keep rent market tight

Dwelling commencements slid 5.2 per cent lower in the September quarter to 45,489 - the fifth consecutive quarterly decline - to be almost 33 per cent lower than the recent peak in June 2021.

While home building work already underway was at a record high 244,479 dwellings in the September quarter, the combination of a slowdown in commencements and slumping approvals (which fell 9 per cent in November) portend much weaker conditions ahead for the housing industry.

Master Builders Australia forecasts that new home building starts will drop to below 200,000 a year, falling short of the volume required to meet demand.

Master Builders chief executive officer Denita Wawn said the industry faced "a bumpy road with a downturn over the next few years".

The slowdown is bad news for renters, who have been hit with rising rents and a scarcity of choices.

The national rental vacancy rate is currently at a very low 1.2 per cent and is just 1.6 per cent in Canberra, according to property monitoring firm CoreLogic. The shortage of properties for lease has helped drive rents up more than 22 per cent since September 2020.

The pressure on rents is likely to intensify as the nation's migrant intake rebuilds following the pandemic border closures. Treasurer Jim Chalmers has flagged the net migrant intake may be lifted above 235,000 in the May Budget.

CoreLogic's head of research Tim Lawless said the influx of new arrivals would put further strain on the supply of rental accommodation.

Mr Lawless said the tightness in the rental market reflected a sustained "downward trajectory" in investor activity in the property market since 2015.

"Investors are rather thin on the ground. There has been a lot of disincentives for investors to be active," he said.

Rising rents could eventually lure more back into the market, but Mr Lawless said most prospective home buyers and investors would likely hold off until interest rates stabilise.

He expects the Reserve Bank of Australia to increase interest rates by 0.5 of a percentage point early this year to reach 3.6 per cent before pausing.

This would be the trigger for buyers and sellers to re-enter the market, which would effectively end the current slide in house prices, Mr Lawless said.

Nationally, house prices have fallen 9.4 per cent from their May peak, according to CoreLogic.

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Mr Lawless said the decline was likely to level off when it reached around 15 per cent, dismissing concerns of a 30 per cent drop.

In Canberra, prices have so far fallen 7.6 per cent from their June 2022 peak and the losses have been widespread.

Analysis by CoreLogic shows in the December quarter all suburbs recorded a decline in house values and almost 90 per cent have experienced a fall over the past 12 months.

Nationally, house prices feel in almost 52 per cent of suburbs last year.