Australia’s Housing Boom Forecast to Drive Strong Construction Growth

Australia’s housing industry is poised for a major upswing in the coming years, with home-building activity expected to rise steadily from the end of this year and peak at 254,000 starts by 2027, according to new forecasts from consultancy Macromonitor. This increase in housing starts will be driven primarily by demand from existing homeowners, investors, and a shift in the buyer market, offering a positive outlook for the construction sector as it emerges from a period of high costs and market uncertainty.

Macromonitor’s analysis highlights that changeover buyers—homeowners who are either upsizing or downsizing—are returning to the market in force, now back at pre-pandemic levels. These buyers are a vital segment of the market, especially in the wake of the end of the federal government’s HomeBuilder scheme, which had temporarily inflated demand. Changeover buyers are expected to favour detached homes over apartments, reflecting the ongoing Australian preference for standalone homes with more space and privacy. This shift is occurring against a backdrop of rising affordability challenges for first-home buyers, who are increasingly priced out of the market due to high borrowing costs and soaring property prices.

“The main drivers of investment in housing going forward will be changeover buyers and investors,” explained Macromonitor economist Emily Bray. “First-home buyers are facing greater affordability challenges, which will limit their ability to enter the market, especially in the current economic climate. As a result, we anticipate a continued trajectory toward a more renter-dominated society, where young people and new migrants are more likely to rent than own homes.”

This shift in the market is creating new opportunities for investors, with rental demand on the rise, driven by a chronic housing shortage and increasing rental prices. In April, new loans to investor buyers grew by 5.6%, the fastest monthly growth rate since late 2021. This influx of investment capital is expected to help finance the development of new housing projects, despite the challenges posed by escalating construction costs and borrowing rates that have made many projects unfeasible for developers in recent years.

Macromonitor projects that housing starts will rise sharply in the coming years, beginning with an increase of nearly 12% next financial year, bringing the total to 181,000 new homes. The pace of construction is expected to accelerate further, with starts rising 20% to 217,000 homes in FY26, and ultimately reaching 254,000 in 2027, marking a significant recovery for the sector. While these figures are encouraging, they still fall short of the federal government’s target of building 1.2 million new homes over the next five years.

Nevertheless, the steady increase in construction activity points to a gradual improvement in Australia’s overall housing capacity, which has struggled to keep up with demand in recent years. According to Ms. Bray, the cycle of housing shortages and surpluses is a familiar one for Australia, with the nation swinging between periods of over- and undersupply. “We expect to see the stock balance gradually move back toward equilibrium over the next decade, though it will likely be a bumpy road,” she said.

The forecasted rise in home-building is largely driven by Australia’s growing population, particularly the influx of new migrants. Between 2022 and 2026, net overseas migration is expected to account for 130,000 to 135,000 new dwellings per year, or about 60% of total housing demand annually. This significant contribution from migration underscores the importance of investor participation in the market, as many new arrivals are unlikely to be able to purchase homes immediately, further boosting the demand for rental properties.

While the predicted increase in housing construction is undoubtedly good news for the sector, it will also play a crucial role in maintaining overall construction activity in Australia. The housing boom is expected to balance out anticipated declines in other sectors such as transport, utilities, and mining, keeping total construction levels high. According to Macromonitor, this unique combination of factors is contributing to an unusually prolonged upturn in total construction, as different sectors experience growth at different times.

“This extended upturn is quite unusual for the construction industry,” said Ms. Bray. “We have waves of growth occurring across various sectors, which are helping to prop up overall activity. This will help ensure the construction industry remains robust and resilient over the coming years, even as some sectors experience slowdowns.”

In conclusion, Australia’s home-building sector is entering a period of strong growth, driven by a combination of investor demand, changeover buyers, and the country’s growing population. While the challenges of affordability and supply remain, the forecasted surge in housing starts offers a positive outlook for the construction industry, which is set to benefit from an extended period of high activity. For industry professionals, this is a time to prepare for increased demand, seize new opportunities, and contribute to addressing Australia’s pressing housing needs.