The construction industry in Australia is facing a slowdown in new building activity due to rising construction costs, adding to the severe shortage of rental properties and putting further upward pressure on rents.

The latest ABS data shows total dwelling starts fell 5.2% in the September 2022 Quarter, while private sector house starts dropped 4.9%. Building approvals also dropped 9% in November.

Master Builders Australia forecasts that new home building starts will drop below 200,000 a year and CEO Denita Wawn says the industry is facing a “bumpy road” in the coming years.

The combination of labour shortages, material shortages and volatile energy prices is making it difficult for the industry to deliver on its housing targets. The national rental vacancy rate is currently around 1%, which drove up rents 22% since September 2020.

Wawn says measures such as making it easier for migrants to work in Australia could help address the labour shortage and ensure the industry can meet its targets.