Australia's housing construction sector is showing signs of stabilisation, but questions remain about whether demand has truly bottomed out.
Residential building activity showed modest growth in Australia during the March 2025 quarter, with residential building work completed up 1.6%, quarter-over-quarter, reaching $24.27 billion in seasonally adjusted terms, according to the Australian Bureau of Statistics (ABS). Year-over-year, residential work done was up 7%, in the 12 months ending in March. This uptick suggests a potential rebound in the housing construction sector.
Michael Dyer, economist at Oxford Economics Australia, said the momentum is most evident in the social housing sector, with public-attached dwelling activity up 18% quarter-on-quarter.
However, he noted that the overall figures fell short of market expectations.
"Completions have probably been a bit softer than a lot of people probably would have needed over the last little while," Dyer told Australian Broker. "That has meant, alongside probably those migration patterns and what's happening elsewhere, that there's a bit of an under supply of housing, and that's pretty strongly playing out across Australia. That is putting some pressure on house and dwelling prices, and provided a lull under that, despite some of the broader macroeconomic uncertainty and things that are playing out there."
Still, the economist expects modest growth in total dwelling commencements to continue throughout the 2025 financial year, supported by improvements across all types of residential construction.
Dyer attributed this outlook largely to increased policy certainty following Prime Minister Anthony Albanese’s recent re-election, which has strengthened confidence among institutional investors and social housing providers. The Reserve Bank of Australia's (RBA) two rate reductions this year have also provided a boost.
"You now have cash rate cuts starting to play through," he said, adding that his firm is anticipating two more in 2025.
"We do expect that to flow through, to unlock some of that demand and really help prices start to increase more at a higher growth rate [towards] mid-decade [around] 2026, 2027," Dyer said.
Builders, meanwhile, have been offering discounts to help stimulate demand – an indication that interest in new housing remains weaker than desired.
Madeline Dunk, an economist at ANZ, noted that the latest ABS data shows the cost of building a new home has begun to rise again, albeit cautiously.
“And if you look at the annual growth, it's still positive. It’s still more expensive, but it’s just growing less than previously. So the fact we saw it jumped – it could just be a monthly anomaly, or it could be a sign that things are picking up," she said.
A mix of competing forces continues to shape Australia’s housing sector. Persistent labour shortages are likely to constrain construction activity in the medium term, while utility connection challenges in major cities may lead to further delays.
At the same time, Dyer noted that the construction backlog is steadily clearing, a trend that could help sustain building momentum throughout 2025. Meanwhile, inflationary pressures remain subdued across the country, adding a layer of stability to the broader economic outlook.
"Inflation going down, that's a bit of a broader measure," Dyer said. "Yes, it does help people have a little bit more cash in their pocket when it comes to building new dwellings. But probably the bigger question is over, is the actual kind of construction cost they're facing. For new houses, that rate of growth has turned negative the past couple of quarters."
The combination of lower rates, a housing shortage and rising prices has created a mixed outlook for the housing market. For mortgage holders, the stabilisation in construction activity may lead to more predictable housing supply, potentially easing upward pressure on property prices. New buyers, at the same time, may still feel like a race against rising prices as they scramble to get into the market. Meanwhile, as rate cuts ease pressure on households, they’re also intensifying activity across the lending space. And brokers are busier than ever.
