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The Middle East conflict is driving up housing construction costs and pushing the sector towards a significant slowdown, major developers warn.
Frasers Property Australia CEO Cameron Leggatt said instability from the conflict is disrupting supply chains, with impacts including shipping delays, higher fuel costs and reduced availability of key construction materials.
“For an industry already navigating tight margins and long lead times, this matters,” he told a Property Council of Australia national housing summit in Melbourne.
“It affects timelines, costs and, ultimately, whether projects proceed.”
Ahead of the federal budget, Leggatt cautioned any changes to capital gains tax and negative gearing must be done carefully to avoid deterring investment in housing.
Stockland CEO Tarun Gupta said the war had sent construction cost inflation “all over the shop”. “The outlook’s now pretty murky,” he said. “Costs are rising and feasibilities will come under pressure. If prices rise … we, across our sectors, don’t have the ability to pass it over, which means activity is going to slow.
“Fiscal and monetary policy settings this time around have to work together to avoid a major, major slowdown, because that’s what we’re facing. The consumer does not have capacity to absorb price increases.”
Mirvac Group CEO Campbell Hanan said the key challenge is building homes faster and more cheaply, while tackling the sector’s heavy cost burden. About 35 to 40 per cent of the cost of building a house or apartment came from government taxes or levies.
Hanan said the housing system was balancing intergenerational inequality, the need for more supply, rising demand for rental accommodation for the 35 per cent of Australians who now rent, as well as affordability. “We just need to be very careful as we think about intergenerational opportunity, that we have settings which keep the balance between the amount of residential rental stock, affordability and that it’s concentrated on future supply as well as intergenerational inequality,” he said. “It’s a really challenging one for governments.”
Hanan said Mirvac would focus on modular construction and procurement over the next year, including sourcing more construction materials directly from overseas and standardising designs to improve efficiency.
The federal government’s housing agency has warned the Middle East conflict could cut 33,000 homes from the 1.2 million National Housing Accord target by mid-2029.
Federal Housing Minister Clare O’Neil told the audience the upcoming budget would be a “housing budget for the country, and that’s a damn good thing”.
“For 40 years, we have not been building enough homes,” she said.
“Our government is fiercely pro- supply, and whatever decisions we make, the end result is that we need to see more housing, not less.”
O’Neil added the sector is in a stronger position than after Covid to deal with headwinds.
“When we arrived in office, construction costs were increasing at 17 per cent a year in 2022,” she said. “More recently, that number is actually below inflation, sitting at closer to 2 per cent so that matters a lot. It doesn’t take all the pain away, but we’re in a stronger position to respond to what’s coming at us.”