Renovations Boom Continues

Australians accumulated hundreds of billions of dollars of excess savings over the pandemic. Together with government grants, 2 years of record low interest rates and the pandemic desire for space and amenity, has led to Australians putting a much higher value on their home environment for both work and leisure. This produced the record renovations boom we have seen in every state and territory, without exception.

Much of this new demand is being satisfied. Rising construction costs, scarce trades and higher interest rates will also put downward pressure on demand for renovations work.

There is, nonetheless, an underlying demand for renovations in Australia, based on the age of the dwelling stock. This is expected to act as a floor for renovations activity, sustaining levels higher than those prevailing before the pandemic.

During a high inflation environment, like the current one, it is important to note the difference between such ‘real’ activity, and ‘nominal’ activity.

For example, a project cost of $1 million last year, may cost $1.1 million this year. The project itself is identical, but the increasing costs of construction may increase costs. Therefore the ‘real’ value is still $1 million, but the ‘nominal’ value is now $1.1 million.

During the pandemic, specifically since the second half of 2020 when activity started ramping up and cost pressures started emerging for the industry, the gap between these metrics widened. Even as quarterly ‘real’ activity has stabilised and even declined, ‘nominal’ activity has continued upwards.

It is therefore possible that, going forward, while the ‘real’ value of renovations activity illustrated above starts declining, the nominal value may be sustained or even increase further. And it is the nominal value that ends up being seen in the financial accounts of renovation businesses and the bank accounts of homeowners.

But in real terms, renovations activity nationally is expected to moderate from its current peak of $45.5 billion in 2021-22, down by cumulative 8.5% over 4 years to $41.6 billion in 2025-26. This trough, while consistent with the age of the dwelling stock, is still higher than anything seen before the pandemic and sits before a 0.6% recovery to $41.6 billion in 2026-27.