The Spring 2014 edition of National Outlook, Australia’s most comprehensive housing report card from the Housing Industry Association identifies 2014 as the year when a record number of new homes will be commenced in Australia.

HIA Chief Economist, Dr Harley Dale observes that the growth in new residential construction has been slower to gather momentum and breadth in terms of both geographical location and dwelling type. While this growth cycle may appear to be different to historical experience, the residential building industry will commence nearly 190,000 new dwellings in 2014, surpassing the previous record of 187,000 back in 1994.

Harley Dale comments that the momentum of growth culminating in this milestone has provided a substantial boost to Australia’s economy at a crucial juncture in the cycle. He notes it is unfortunate that policy makers have failed to grasp the reform initiative required to complement record low borrowing costs and raise new home building levels higher still in 2015 and 2016. This lack of policy action will impact Australia’s economic growth and labour market performance.

According to Harley Dale, record low borrowing costs have combined with other factors such as high net overseas migration to release substantial pent-up demand for new housing. While these factors will keep the level of new homes commenced at historically elevated levels, he believes that only taxation and regulatory reform can trigger the necessary growth in new home building needed by economy.

Harley Dale also noted that renovations investment has not joined the new housing ride in this cycle, increasing by only 0.3 per cent in 2013/14 from a decade low. Factors such as unemployment concerns, lack of available credit, and elevated household savings rate have ensured there is no room for a renovations recovery alongside new home building activity and existing property price growth.

However, the report also forecasts growth of 0.9 per cent in renovations investment in 2014/15, accelerating to 2+ per cent growth in the subsequent three years.