Dive in new home building approvals faster than expected

author-avatar By on May 16,2019
Dive in new home building approvals faster than expected

Photo by Jens Behrmann on Unsplash

The low number of new homes being built this year is “of concern” to the Housing Industry Association (HIA) who had not anticipated such a rapid rate of decline.

The number of new homes being built has plummeted 15.2% so far this year, according to the HIA’s quarterly economic and industry outlook report.

Preliminary data suggests the housing market has adjusted from a strong annualised rate of home building of around 220,000 per year this time last year, to around 183,000 at the beginning of 2019.

HIA’s Chief Economist, Tim Reardon said the decline was completely unexpected.

“We had anticipated that this correction would take two years, not six months,” he said.

“Market confidence fell away in the later part of 2018 as dwelling prices corrected, adversely impacting all segments of the market. Investors and owner occupiers are delaying purchase decisions and foreign investment has also fallen dramatically due to a range of government restrictions.”

Mr Reardon said it was expected at the beginning of the year that a strong national economy would be enough to pull the home building industry through the downturn.

“These hopes fell away as GDP slowed,” he said.

The economist added that if the Reserve Bank of Australia waits for a deterioration in the labour market before lowering the cash rate “it might be too late for the home building industry which will adjust employment levels for this lower level of activity”.

“Unfortunately, a cut to interest rates in 2019 will not have the same positive impact on new home building as in previous cycles,” he said.

“Banks are assessing borrowing capacity against a minimum floor of a 7.25% mortgage rate and for ‘Interest Only’ loans to be assessed on a Principal and Interest basis for the term of the loan.

“An easing of APRA’s lending restrictions would have a more significant impact on home building and the broader economy than a further cut to interest rates alone.”

Mr Reardon added that the impact of a slowing economy and the ongoing impact of the credit squeeze will continue to force new home building lower.

“As a consequence, there is a need to downgrade our expectations of the speed of the current downturn in the housing market further.”

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Emma Duffy joined Savings.com.au as a Finance Journalist in 2019 after spending a year as the editor of The Real Estate Conversation. She's most passionate about improving the financial literacy of millennials by writing about complex financial topics in a way that's easy for the average Joe (or Jill) to understand.


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