Why Stamp Duty Bills are Snowballing – HIA

The HIA says that stamp duty bills have increased almost three times faster than house prices since the 1980s and this trend will continue unless stamp duty is reformed. This result is contained in the latest edition of the HIA’s Stamp Duty Watch report which provides an analysis of state governments increasing reliance housing taxes.

The results also highlight just how much high property prices are helping to stoke state coffers – $20.6 billion in 2016- and the risks attached should this change! A switch to a broader property or land tax might be an option, but is politically risky. This would need to be part of broader property sector reform.

HIA Senior Economist, Shane Garrett says

In Victoria, the typical stamp duty bill increased from 1.9 per cent to 5.2 per cent of the median dwelling price between 1982 and 2017 – equivalent to a surge of 4,000 per cent in the cash value of stamp duty. NSW homebuyers fared little better with the stamp duty burden rising from 1.6 per cent to 3.8 per cent over the same period.

Increases in home prices cause stamp duty bills to accelerate because stamp duty rate brackets are rarely updated. This is the problem of stamp duty creep.

In NSW, stamp duty rates have not been reformed since the average house price was $70,000 (1985).

State governments are compounding the housing affordability crisis. Total stamp duty revenues have almost doubled over the past four years: from $11.7 billion in 2011/12 to $20.6 billion in 2015/16 – most of which is likely to have come from residential building. State governments are now more reliant on stamp duty revenues than at any time for a decade. This trend will continue unless state governments recalibrate their taxes on housing.

State governments are increasingly reliant on rising stamp duty revenues. This situation is not sustainable.

The stamp duty burden is increasing under every metric: nominal dollars, real dollars, as a proportion of dwelling prices and as a share of total state revenue. Without reform, this trend will continue.

By draining the pockets of homebuyers to the tune of over $20 billion each year, stamp duty is a central pillar of the affordability crisis. A long plan to do away with the scourge of stamp duty would be a huge victory for housing affordability in this country.

Home Renovation Spending On The Slide Too

According to the HIA, in the December 2017 edition of their Renovations Roundup report which is released today, low wage growth and fewer home sales resulted in a slowing in renovations activity in 2017.

The HIA Renovations Roundup is the most comprehensive regular review of Australia’s $33 billion home renovations market. The report also includes the exclusive results of a survey of 595 renovations firms right across the country.

“The near term outlook for home renovations demand is being held back by sluggish wages growth. Because renovations activity is often initiated by the new owners of older homes, the dip in established house turnover over the past 12 months has not accelerated renovations activity this year,”

“During 2017, home renovations work contracted by 3.1 per cent. A further decline of similar magnitude is projected for 2018.

“The medium term holds better prospects for renovations activity. Interest rates are set to remain lower for longer than previously expected. The ageing of Australia’s dwelling stock will also work in favour of renovations demand – the number of houses in the key renovations age bracket of 30-35 years is going to rise substantially until the early part of the 2020s decade.

“Even though current conditions in the renovations market are marking time, the HIA renovations market survey suggests that 40 per cent of firms still intend to take on extra employees over the next 12 months.” said Shane Garrett, HIA’s Senior Economist.

HIA forecasts that renovations activity will suffer a 3.1 per cent decline during 2018 but that a 3.2 per cent recovery will take hold during 2019. In 2020, the pace of expansion is set to accelerate to 5.7 per cent.

Further growth of 0.9 per cent in 2021 is expected to bring the value of the home renovations market to $35.57 billion – compared with $33.36 billion in 2017.

New Home Sales Slide

According to the HIA, New Homes Sales Report – a survey of Australia’s largest home builders – there has been a fall in the number of new homes sold in 2017. New home sales were 6 per cent lower in the year to November 2017 than in the same period last year. Building approvals are also down over this time frame by 2.1 per cent for the year.

The HIA expects that the market will continue to cool as subdued wage pressures, lower economic growth and constraints on investors result in the new building activity transitioning back to more sustainable levels by the end of 2018.

This is a smaller down-turn than we anticipated and bodes well in terms of the likelihood of a modest and orderly reduction in new house building.

The story is not consistent across all of the states with Western Australia and Victoria providing the book ends on five very different stories.

In the middle of the year it looked like Western Australia had turned the corner after a significant decline in activity over three years, but the new financial year brought even lower results as more restrictive first home buyer policies were implemented.

At the other end of the market in Victoria, the expected slowdown in building activity has not yet materialised. Sales of new houses increased by 6.3% for the 12 months to November 2017 and approvals rose by a further 8.7 per cent in the three months to November compared with the same period in 2016.

New Home Sales Decline Further from Peak In September

The HIA says the decline in new home sales which commenced in 2015 has continued with a 6.1 per cent reduction during September 2017.

The results are contained in the latest edition of the HIA New Home Sales Report the market’s leading gauge of sales activity in residential building across the five largest states. During September 2017, new detached house sales fell by 4.5 with a reduction of 16.7 per cent on the multi-unit side of the market.

During September 2017, NSW was the only state to see growth in new detached house sales (+3.7 per cent) compared with August. WA experienced the largest reduction in sales during September (-15.1 per
cent) followed by Queensland (-8.7 per cent). New detached house sales also fell in Victoria (-2.3 per cent) and SA (-1.7 per cent) during September.

“The decline in home sales over the past 18 months reflects the slowing in output across the economy and is a guide to short term activity in the residential building industry,” HIA Senior Economist, Shane Garret said.

“New home sales is a leading indicator of approvals data and shows that building activity peaked in March 2016 following the longest ever upturn in new home building.

“This process of adjustment will involve quite sizeable reductions both in building activity on the ground.

We expect that activity will bottom out sometime in 2019 with a recovery then setting in – assuming the economy reverts to its long-term average growth rate of around 3 per cent,” concluded Shane Garrett.

New Sydney Land Costs Top $1,000 per SQM

According to the HIA-CoreLogic Residential Land Report, over the year to June 2017, residential land costs in key markets have soared to a new high with vacant land in Sydney now over $1,000 per square metre.

Price pressures in the market for residential land were most intense in Melbourne where the median price increased by 19.6 per cent over the previous 12 months. The pace of land price growth was also strong in Sydney (+9.8 per cent) and Adelaide (+8.0 per cent) over the same period. Land price gains were more modest in Perth (+5.0 per cent) and Brisbane (+0.1 per cent) over the same period. Hobart was the only capital city to experience a reduction in the median land price over the year to June 2017 (-15.8 per cent).

The report indicates that the median lot price nationally increased to $256,683, an increase of 8.5 per cent on a year earlier and across Australia, land turnover is down about 9 per cent on a year ago.

“Land supply policy has to be central to making real and sustainable progress on housing affordability. This requires improved outcomes with respect to financing of housing infrastructure, monitoring and timely reporting on land release and speeding up zoning and subdivision process,” said HIA’s Shane Garrett.

According to Eliza Owen, CoreLogic’s Commercial Research Analyst, “Record high lot prices over the past five quarters are likely to have contributed to worsening affordability and influenced the unprecedented level of high density residential development that is currently under construction.

“As the Australian economy shifts from residential to non-residential construction, demand for vacant residential land may shift in location and scope. New and prospective infrastructure developments such as the inland freight rail and Badgerys Creek Airport will open up new employment and development opportunities further from the metropolitan regions which may stimulate demand for housing in areas with a more affordable price tag,” concluded Eliza Owen.

Housing Affordability Eases for Some

The HIA says that despite the poor levels of housing affordability there are signs of improvement for home-buyers. Investors are not so lucky.

“The HIA Housing Affordability index for Australia improved by 0.5 per cent in the September 2017 quarter but still remains 4.4 per cent below the level recorded a year ago.

“Housing Affordability has been deteriorating in Australia for decades, particularly in capital cities, as demand for new housing greatly exceeded the supply.

“Recent interventions by the government, through APRA, to curb growth in investor activity may have improved affordability for owner-occupiers.

“As a consequence of this intervention it appears that the market has responded with higher mortgage rates for investors and eased rates for owner-occupiers.

“This has had the unintended consequence of improving housing affordability for owner-occupiers.

“Irrespective of intent, this is positive news for owner-occupier buyers in the affordability equation.

The HIA Affordability Index has been produced for more than 17 years using a range of recent data including wages, house prices and borrowing costs to provide an indication of the affordability of housing.

A higher index result signifies a more favourable affordability outcome.

“The Report’s regional analysis demonstrates the substantial differences in affordability conditions around the country,” added Mr Reardon.

“Sydney retains the mantle as the nation’s least affordable housing market despite the affordability index showing a modest improvement in affordability during the quarter. It still takes twice the average Sydney income to service a mortgage on a median priced home in Sydney while avoiding mortgage stress.

Brisbane, Adelaide, Perth and Darwin all recorded modest improvements in affordability in the September quarter. Melbourne, Hobart and Canberra each recorded a modest deterioration in affordability during the quarter.

New home sales lift in August – HIA

The HIA New Home Sales report – a monthly survey of the largest volume home builders in the five largest states – says for the three months to August compared with the same period last year, house sales in Victoria are 15.7 per cent higher and up by 9.2 per cent in South Australia. Over the same period, sales declined in Queensland (-7.3 per cent), WA (-15.4 per cent), NSW (-17.4 per cent) and Queensland (-37.9 per cent).

“New home sales increased by 9.1 per cent last month as a result of very strong results in Victoria and Western Australia, but over the year sales have continued to slow,” stated HIA’s Principal Economist, Tim Reardon.

“The jump in sales in July confirms our forecast of a slowdown in building activity through until 2018/19.

The increase in sales in August offsets larger declines in sales in recent months, but it is not sufficient to reverse the decline in sales that is evident since early 2016,” continued Mr Reardon.

“Results in July and August have been affected by government interventions in NSW and Victoria which have seen first home-buyers returning to the new home market.

“Victoria has seen record numbers of new building approvals and new home sales are continuing to drive even higher. Strong population growth and employment growth, fortified with enhanced first home buyer incentives, is prolonging the boom in building activity.”

“The trend in new home sales continues to provide a strong leading indicator of the trend in residential building approval figures from the ABS as can be seen in the chart below,” concluded Mr Reardon.

Building Approvals Rose In July

The number of dwellings approved rose 0.7 per cent in July 2017, in trend terms, and has risen for three months, according to data released by the Australian Bureau of Statistics (ABS) today.

Dwelling approvals increased in July in the Australian Capital Territory (8.8 per cent), Victoria (1.0 per cent), Western Australia (0.8 per cent), South Australia (0.8 per cent), New South Wales (0.4 per cent) and Queensland (0.2 per cent), but decreased in the Northern Territory (9.7 per cent) and Tasmania (1.0 per cent) in trend terms.

In trend terms, approvals for private sector houses rose 1.0 per cent in July. Private sector house approvals rose in Queensland (1.5 per cent), Victoria (1.1 per cent), South Australia (0.9 per cent) and New South Wales (0.8 per cent), but fell in Western Australia (0.1 per cent).

In seasonally adjusted terms, dwelling approvals decreased by 1.7 per cent in July, driven by a fall in private dwellings excluding houses (6.7 per cent), while private house approvals were flat.

The value of total building approved rose 1.3 per cent in July, in trend terms, and has risen for six months. The value of non-residential building rose 3.1 per cent while residential building was flat.

“The value of non-residential building approvals have risen for the past six months, in trend terms, reaching a record high in July 2017,” said Daniel Rossi, Director of Construction Statistics at the ABS.

“The strength in non-residential building has been driven by approvals in New South Wales and Victoria, where a number of office and education buildings have been approved in recent months.”

Commenting on the figures, the HIA said:

“Today’s building approval figures show that the detached house building sector has plateaued at a high level while the building of multi-unit projects is sliding, was confirmed by ABS data today,” stated Tim Reardon, HIA’s Principal Economist.

The ABS released July Building Approval data today which shows that the paths of detached and multiunit residential building continue to diverge as the industry’s contribution to GDP is set to fall.

“Multi-unit sector approvals fell by 3.3 per cent to be 27.5 per cent lower than twelve months ago while detached house building approvals remained constant over the year.

“Detached home approvals were 2.4 per cent better in July this year than compared with July 2016.

“The slowdown in the multi-unit sector is also showing up in the amount of work done on all residential sites has fallen by 3.2 per cent in the first half of this year, based on the construction data also released by ABS today.

“This slowdown in on-site activity is likely to see residential building have a negative impact on GDP growth for the June quarter.

“There is also significant variation in residential building conditions around the country.

“Compared with a year ago multi-unit approvals in July were down by 20 per cent or more in all the eastern states while movements in detached home approvals included a 9.6 per cent increase in South Australia to a fall of 8.7 per cent in Western Australia.

“The significant variation in industry conditions between the multi-unit sector and detached homes and around the states is likely to continue for some time consistent with HIA’s latest forecasts”, Mr Reardon concluded.

New Home Sales Decline In July

The HIA New Home Sales report – a monthly survey of the largest volume home builders in the five largest states – show that sales volumes declined by 3.7 per cent during July 2017 compared with June 2017. Sales for the first seven months of this year are 4.6 per cent lower than in the same period of 2016.

Sales of new detached houses during July 2017 fell by 0.4 per cent nationally to their lowest level since October 2014. Victoria was the only state to experience growth (+9.8 per cent). Detached house sales fell in South Australia (-16.2 per cent), Queensland (-16.1 per cent), Western Australia (-9.1 per cent) and New South Wales (-5.2 per cent) during the month.

“A drop in new apartment sales have contributed to the continuing decline in new home sales nationally since they peaked in mid 2015,” stated HIA’s Principal Economist, Tim Reardon.

“July’s result was driven by a 15.7 per cent decline in multi-unit sales and a more measured reduction in detached house sales. The large drop in multi-unit sales this month is in contrast to strong sales volumes late in 2016 and early 2017,” outlined Mr Reardon.

“This trend is consistent with HIA’s expectation that activity will decline modestly from these record high levels over a number of years,” added Mr Reardon.

“Victoria was the notable exception – as the only state to grow sales during July 2017. Sales were up by 9.8 per cent on what is already a very high level of activity.

“On the other hand, the Western Australian Government’s First Home Buyers grant ended on 30 June 2017 and as a consequence sales in July fell sharply from what was already a very low base.

The Housing Magic Bullet May Be Shot

The HIA suggests the housing sector will become less of an economic driver of the Australian economy, and also underscores the various regulatory interventions from state taxes, to limiting foreign investment and investor lending.

Another plank in the argument that the housing party is over, leaving households with a mighty debt driven hangover.

According to the HIA, the Winter 2017 edition of the HIA’s National Outlook Report discusses the downturn in building activity that started in March 2016 and forecasts the length and depth of the cycle. It also highlights the role foreign investment plays in growing housing stock in Australia.

 

“The housing sector has already stepped back from its role driving the Australian economy and now is not the time for governments to hit the industry with punitive charges,” warned Tim Reardon, HIA’s Principal Economist.

“Government interventions into the market so far include: state governments imposing punitive Stamp Duty charges on foreign investors, Federal charges for foreign investors, a new set of visa rules that could slow overseas migration, restricting lending to domestic investors and new regulations limiting interest only lending.

“The Chinese government has also imposed restrictions on capital leaving the country which may have a significant impact on Australian home building.

“Foreign investors have been attracted to the Australian housing market and they have been investing billions annually in the construction of new residential dwellings.

“These investors have contributed to activity and employment in metropolitan areas building the supply of new housing stock and easing pressure on rental markets.

“Governments of all jurisdictions should proceed with caution when imposing new punitive measures on this segment of the market.

“Foreign capital is highly mobile and if it is forced from the market rapidly it could accelerate the downturn in the sector unnecessarily.

“A number of state governments have recently hit foreign investors with punitive charges.

“The Australian Government has also imposed additional regulations that will impact on investors in the sector.

“The HIA is forecasting that building activity will decline modestly – from record highs – over a number of years, consistent with typical cyclical trends in the industry. Activity will bottom out in 2019 with activity still at solid levels.

“There is a risk – if uncoordinated and poorly considered policies are introduced to curb foreign investment – that the decline in activity in the sector will be accelerated,” Mr Reardon concluded.