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  • Writer's pictureEstate Conveyancing

Covid-driven renovations boom to ease as costs and rates soar

First published 23 Aug 2022, 12:59pm

Australia's pandemic renovations boom is starting to ease as construction costs, interest rates and the cost of living soar.

The Housing Industry Association expects a gentle decline in renovations activity as rising rates and costs bite into demand, while separate research shows first-home buyers are now more likely to delay upgrades.

PropTrack senior economist Eleanor Creagh said increased costs for construction materials, long lead times and supply chain disruptions are likely to see more people delaying plans to renovate.

"Demand has eased as the cost of construction has risen. Access to trades has also become a hurdle and there are long lead times combined with materials shortages," Ms Creagh said.

"Consumer confidence has slipped and with rates rising and inflationary pressures, coupled with industry challenges, there will be fewer people looking to renovate relative to the pandemic boom."

Australians spent a record $12.49 billion on renovations in 2021 – up more than 34% on 2020, according to Australian Bureau of Statistics data.

"Australians spent more on renovating their homes in 2021 than in any other year, going back to when records began in the 1970s," Ms Creagh said.

"Home renovations boomed nationwide as more time spent at home, which combined with government grants, ultra-low loan rates and improved household savings became the perfect combination of factors to drive heightened demand for renovations.

"For some the constrained supply of properties for sale in 2021 would have added to the impetus to renovate and upgrade their current home over selling and looking for a subsequent property to purchase."

Ms Creagh said the cost of building materials and labour have surged amid global supply chain disruptions and shortages, adding that commodity prices boomed over the past two years as global freight costs soared.

She said manufacturing and logistics strains have started to normalise.

"Construction costs are likely to come down, though off a high base, in the period ahead. Price rises could peak this year and moderate in 2023."

Renovations activity has peaked

While both large- and small-scale renovation projects are booming, the latest HIA National Outlook report notes households are starting to travel more and spend less on household goods.

The report also notes rising interest rates and cost-of-living pressures are also affecting the volume of household goods spending, which fell 1.8% in the June quarter.

"The fall in spending on household goods is an indication that the pandemic renovation boom might be passed its peak given that this is the second consecutive quarterly decline.

"The volume of household goods retailing has been elevated since the onset of the pandemic, reflecting consumers spending more on the home. But recently, higher household goods prices have weighed on the volume of spending."

HIA economists said rising rates and costs to bite into demand for renovations activity, but this was necessary to bring demand closer to the industry's capacity to supply renovation projects.

The report notes total renovations activity grew by 18.7% between the March quarter of 2020 and the March 2022 quarter, when it equalled the record level set in the September 2021 quarter.

"From here, the effect of rising costs and interest rates should be mitigated by a substantial buffer of consumer savings, elevated equity in homes, ageing dwelling stock, and elevated property transactions.

"Activity is expected to decline only modestly, by 2024/25 still being 11.5% above pre-pandemic levels."

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