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An end to Australia’s apartment binge looms over jobs, growth

By Swati Pandey and Sam Holmes

SYDNEY, July 7 (Reuters) – The hit to Australia’s population growth from closing its international borders is quickly turning a long-running housing shortage into a glut, bringing an end to the apartment building boom behind much of the country’s recent prosperity.

Since 2000, Australia has added about 6 million to its population, more than six times the growth seen in Germany, with most of that coming from immigration. That fueled huge demand for housing construction, much of it smaller dwellings in larger, higher-density urban blocks, not just the bungalows on sprawling plots for which Australian suburbs are better known.

With Australia’s borders likely to remain closed until the coronavirus pandemic is successfully contained, a heavy decline in construction, which accounts for roughly 10% of all jobs and economic activity, is set to push unemployment higher and hurt businesses both up and downstream.

Lindsay Partridge, managing director of Brickworks, a building materials company, sees the pipeline for big multi-unit housing developments drying up as immigration stalls and non-permanent residents depart.

“We are seeing quite high vacancy rates emerging,” Partridge told Reuters. “A lot of the people who were renting apartments are going home.”

Sydney, the biggest city, is experiencing the worst residential vacancy rate in the country at over 16% in May from between 4% and 5% late last year, according to SQM research.

Since 2014, higher density housing has accounted for about 43% of residential construction, more than double the proportion during the 1980s. Significant demand has come from the massive influx of foreign students who make up about 40% of Australia’s immigration intake.

In May, the number of higher density homes approved for construction fell 34.9% to a near eight-year low, data showed last week. Economists see further declines ahead.

BIS Oxford expects construction starts for high rise apartments to fall to just 21,500 in the year to June 2021, down by two-thirds from five years ago.

To head off the expected shock, the central bank has slashed borrowing rates to record lows. State and federal governments have brought forward massive public works spending and offered grants for home alterations.

There are also hopes that demand for houses in areas outside the major cities might pick up as employers increasingly embrace remote working arrangements.

PIPELINE PLUNGE COMING

Compared with the thousands of deaths in other countries, Australia has managed to keep its outbreak well contained with just over 100 fatalities. While its economy has entered its first recession in three decades, the contraction is less acute than most of its rich world peers.

Unlike the services industry, where hundreds of thousands of jobs have been lost, the hit to construction has so far been mild.

Still, policymakers are deeply worried about that changing as builders approach a plunge in the project pipeline over the next 12 months.

“Looking ahead, most contacts expect to continue to adjust their workforce in some format because of the uncertain outlook for construction activity,” the central bank noted in an internal research released under FOI in late May.

Also darkening the outlook are Australia’s increasingly strained ties with China, one of its biggest sources of immigration.

That has raised uncertainty over not only the timing of a recovery, but also whether the market will return to the heady demand of the past decade.

Morris Property Group last month shelved a 345-unit apartment development in Australia’s capital, Canberra, due to the collapse in demand as borders closed.

Situated near the Australian National University, the project was geared to meet housing needs for international students, mainly Chinese and Indian, who would ordinarily populate the district.

Barry Morris, the group’s director, says the cancellation means some 300 construction jobs will no longer be needed.

Even when construction becomes viable again, Morris does not expect demand to support a project of the scale planned and says it could end up being closer to 150 units.

“When we are ready, we will redesign it and it will probably need to be smaller,” Morris said.

(Editing by Lincoln Feast.)


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