Housing Starts Still Well Down

The ABS today released building activity data for the June quarter of 2019 and for August 2019.

The trend estimate for total dwellings approved fell 3.9% in August.

The seasonally adjusted estimate for total dwellings approved fell 1.1% in August.

The value of residential building fell 2.9% and has fallen for six months.

The trend estimate of the value of new residential building work done fell 2.5% in the June quarter. The value of work done on new houses fell 1.7%, while new other residential building fell 3.5%.

The seasonally adjusted estimate of the value of new residential building work done fell 4.7% to $16,097.2m. Work done on new houses fell 4.7% to $8,682.9m, while new other residential building fell 4.7% to $7,414.3m.

Despite a small improvement in new home starts in the June quarter, they remain 20 per cent lower than against the same period a year ago.

Annual housing starts during the 2018/19 financial year fell in all states and territories, with the exception of the Australian Capital Territory (+17.8 per cent) and Tasmania (+5.3 per cent).

The largest annual fall was recorded in the Northern Territory (-28.4 per cent), followed by South Australia (-22.6 per cent), Victoria (-17.8 per cent), Western Australia (-14.3 per cent), Queensland (-13.9 per cent), and New South Wales (-13.1 per cent).

“The number of new homes commencing construction in the June quarter increased by 1.1 per cent, the first increase since December 2017,” said Tim Reardon, HIA Chief Economist.

Commenting on the results, Tim Reardon, HIA Chief Economist said “The number of new homes commencing construction in the June quarter increased by 1.1 per cent, the first increase since December 2017.

“The increase in total starts was due to a 21 per cent lift in multi-unit starts, mainly in NSW and WA. Detached housing starts have slowed to their lowest level since December 2013.”

“More recent data informs us that the downturn in detached home starts has slowed. The impact of three cuts to interest rates and small fiscal stimulus has slowed the decline in work entering the pipeline.

“The slowdown in building activity over the past 18 months has adversely affected the national economy and has been one of the main drags on GDP growth.

“A return to normal lending conditions would provide a boost to home building and the wider economy.

“Indications are that the downturn in new projects entering the pipeline are starting to improve following cuts to interest rate but the market is not yet at the bottom of this cycle.

New Home Sales Stabilise – HIA

Over the year to June 2019 new home sales fell 12.4 per cent compared with the previous financial year with every state recording a sharp contraction in sales says The HIA New Home Sales report – a monthly survey of the largest volume home builders in the five largest states.

Around the states, new home sales rose for the June quarter compared to the previous quarter in Victoria (+5.1 per cent), Western Australia (+2.9 per cent) and South Australia (+2.6 per cent). The quarterly declines in sales in New South Wales (-1.7 per cent) and Queensland (-8.9 per cent) still represented a moderation of earlier declines.

However, the small improvement in sales in the June quarter, up by just 0.8 per cent on the preceding quarter, suggests that the decline in new home sales that has been underway for more than a year, has started to ease said the HIA.

The upside of the current building industry downturn is that activity levels have synchronised across the east and west coasts – and within each state – making it easier for policy makers to coordinate policy settings.

Two interest rates cuts, a tax cut and repeal of regulatory restrictions will encourage increased activity in the home building market.

These measures, combined with ongoing stable population and employment growth should see new home sales improve toward the end of the year

New Home Sales Rebound In May – HIA

New home sales jumped in all four major states in May 2019, according to the HIA New Home Sales report – a monthly survey of the largest volume home builders in the five largest states – provides an early indication of trends in the residential building industry. They were up by 54.2 per cent in New South Wales, by 34.0 per cent in Western Australia, by 26.0 per cent in Queensland, by 25.3 per cent in Victoria and by 0.9 per cent in South Australia.

“New home sales in May bounced back to their highest monthly level in over a year,” stated HIA’s Chief Economist, Tim Reardon.

“The pickup in sales during May follows lacklustre results throughout the first four months of 2019,” added Mr Reardon.

“Federal Elections always impact market confidence and the discussion around new tax imposts on investors through an increase in Capital Gains Tax magnified this uncertainty in the first part of the year.

“This month’s result confirms our expectation that the decline in building activity will start to level off in the second half of 2019 and stabilise at a level below the highs achieved back in 2017.

“The resurgence in home sales was evident across all five states covered by the New Home Sales survey, suggesting a broad based improvement in housing market sentiment around the country.

“An easing of the credit squeeze, lower interest rates and an expectation that APRA will implement reforms to mortgage lending guidelines are also factors supporting the lift in sales activity.

“The slow start to 2019 has seen intense competition amongst home builders. The lift in sales shows that more homebuyers are seeing opportunities in this competitive trading environment.

“Income tax cuts, solid population growth and accelerating wage growth are necessary to ensure that the market does not decline further,” concluded Mr Reardon.

The Home Price Fall Silver Lining – Affordability Improves

The HIA reported today that there was been a 10% improvement in affordability in a year. They attribute this to – wait for it, more building and wage rises – but do not mention the elephant in the room, the home price falls, which are continuing – at more than 10% in Sydney and Melbourne! No surprise, as home prices fall, affordability improves…

Five of the eight capital cities saw improved affordability over the year to March 2019. Sydney continues to be home to the greatest improvements, its index is up by 12.4 per cent. This was followed by Melbourne (+9.6 per cent), Perth (+7.7 per cent), Darwin (+5.9 per cent) and Brisbane (+2.5 per cent). Affordability deteriorated in Hobart (-5.1 per cent), Canberra (-5.1 per cent) and Adelaide (-1.1 per cent).

HIA’s Affordability Index is calculated for each of the eight capital cities and regional areas on a quarterly basis and takes into account the latest dwelling prices, mortgage interest rates and wage developments.

“The HIA Affordability Index rose by 2.2 per cent in the March 2019 quarter to post the most significant improvement in affordability since September 2013,” said Tim Reardon, HIA Chief Economist.

“The improvement in housing affordability has been experienced across the country, with the exception only of Tasmania and the ACT, where ongoing house price growth has seen affordability remain static,” added Mr Reardon.

“The boom in home building of the past five years is a key factor behind the improvement in housing affordability. With completions of new homes remaining at elevated levels, affordability is poised to continue to improve.

“Wage growth also contributed to the improvement in affordability.

“The improvement in affordability is most significant in east coast capital cities. Affordability in Sydney deteriorated to an extent that in June 2017 it required two average Sydney incomes to be able to afford repayments on an average Sydney home. In just over a year this has improved to only requiring 1.8 standard incomes to purchase the same home.

“Similarly, in Melbourne the Affordability Index has improved by almost 10 per cent in a year,” concluded Mr Reardon.

15.2% Fall In New Homes Being Built

HIA released its quarterly economic and industry outlook report today.

They plea for weaker lending standards to revitalise the residential construction sector. In other words let the debt bomb get ever bigger!

The State and National Outlook Reports include updated forecasts for new home building and renovations activity for Australia and each of the eight states and territories.

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

“The low number of building approvals in the first three months of 2019 are of concern. With this poor quarter of results, the number of new homes being built has fallen by 15.2 per cent this year and a further decline in activity through this calendar year of around 11.0 per cent is expected,” stated HIA’s Chief Economist, Tim Reardon.

“We had anticipated that this correction to new home building would take two years, not six months.

“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.

“At the start of 2019 the most encouraging news for the building industry was that a strong national economy would be sufficient to pull the home building industry through this downturn. These hopes fell away as GDP slowed.

“The RBA has repeatedly stated that it is looking for a deterioration in the labour market before it moves to lower interest rates further. There is a risk that if they wait for this trigger, 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.

“Banks are assessing borrowing capacity against a minimum floor of a 7.25 per cent 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.

“Regardless of the timing of a cut to interest rates or the repeal of regulatory restrictions in the housing market, 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,” concluded Mr Reardon.

HIA Says New Home Sales Show Signs of Stabilising

The HIA New Home Sales report for March shows that across the state’s New South Wales (4.8 per cent), South Australia (8.6 per cent) and Western Australia (2.3 per cent) all experienced an increase in new home sales compared to the previous month. Queensland experience a decrease of 4.7 per cent and Victoria was down by 2.9 per cent on the month of February.

The HIA New Home Sales report – a monthly survey of the largest volume home builders in the five largest states – provides an early indication of trends in the residential building industry.

“After falling by 8.5 per cent in 2018 new home sales appear to have stabilised in the first quarter of 2019,” stated Geordan Murray, HIA Senior Economist.

“Given the rapid decline in new home sales throughout 2018, this moderation in the fall in new home sales suggests that the credit squeeze is easing as the market adjusts to the new lending norms,” added Mr Murray.

“The credit squeeze impacted the market at a time when the natural housing cycle was already beginning to cool. Banks reduced the amount of money they were willing to lend and the time it took to get a loan approved blew out. The market is now showing signs of adjusting to the new levels of lending.

“Three of the five mainland states experienced a significant increase in new homes sales on the previous month, reversing some of the declines experienced in 2018.

“There is uncertainty surrounding the federal election, which typically subdues new home sales and approvals as investors and owner occupiers put decisions on hold until after the election. The election result will rectify this uncertainty but the potential for higher taxes on housing means a post-election rebound in sales may not eventuate,” concluded Mr Murray.

New Home Starts In Sep 18 Quarter Lower

The ABS data released today shows the rate of new home starts is slowing.

The HIA put our a note on this:

Total housing starts in the September 2018 quarter increased in Queensland (8.3 per cent), Western Australia (2.9 per cent) and in the Australian Capital Territory (41.5 per cent). Housing starts declined in the remaining states: South Australia (-18.6 per cent), Victoria (-16.0 per cent), Tasmania (-6.0 per cent), New South Wales (-5.5 per cent) and the Northern Territory (-2.9 per cent).

“Strong levels of new home starts early last year underpinned one of the strongest years of residential building activity on record. Results for the second half of the year reflect the softening that have been evident in the broader housing market,” said HIA Senior Economist, Geordan Murray.

“The ABS today released building activity data for the September quarter of 2018. A total of 54,803 dwellings commenced construction which is down by 5.7 per cent in the quarter and down by 2.2 per cent against the same period a year ago.

“Detached house starts were down by 4.5 per cent in the quarter but were comparable with the level of starts during the September quarter a year earlier.

“Starts of ‘other dwellings’, primarily apartments, were down by 7.1 per cent in the quarter and down by 5.3 per cent on the year-ago level.

“This was a material decline but it can’t be considered a poor result. It was still a strong level of starts and there is a large amount of residential building work underway.

“We’ll continue to monitor activity closely as leading indicators suggest that there were fewer new projects entering the pipeline in the latter stages of 2018. This is a warning bell for the trajectory of starts in 2019.

“As projects that are currently under construction reach completion there are likely to be fewer new projects coming in behind them. This applies to both the detached house market and the market for higher density dwellings.”

Dwelling approvals fall in November

The number of dwellings approved in Australia fell by 2.3 per cent in November 2018, in trend terms, according to data released by the Australian Bureau of Statistics (ABS) today.

“The trend for total dwellings has been steadily declining over the past twelve months,” said Justin Lokhorst, Director of Construction Statistics at the ABS. “The series is now 18.3 per cent lower than at the same time last year.”

NUMBER OF TOTAL DWELLING UNITS

Graph: Number of total dwelling units

The trend estimate for total dwellings approved fell 2.3% in November.


NUMBER OF PRIVATE SECTOR HOUSES

Graph: Number of private sector houses

The trend estimate for private sector houses approved fell 0.3% in November.


NUMBER OF PRIVATE SECTOR DWELLINGS EXCLUDING HOUSES

Graph: Number of private sector dwellings excluding houses

The decrease in November was driven by private sector dwellings excluding houses (e.g. townhouses and apartments), which fell 5.0 per cent. Private sector houses also declined, by 0.3 per cent.

Among the states and territories, dwelling approvals fell in November in the Australian Capital Territory (9.5 per cent), South Australia (6.2 per cent), Western Australia (4.5 per cent), Queensland (3.4 per cent) and New South Wales (3.1 per cent) in trend terms. Tasmania (3.5 per cent) and Victoria (0.6 per cent) were the only states to record increases, while the Northern Territory was flat.

Approvals for private sector houses fell 0.3 per cent in November in trend terms. Victoria (0.7 per cent) and New South Wales (0.1 per cent) rose, while decreases were recorded in Queensland (1.8 per cent), South Australia (1.0 per cent) and Western Australia (0.7 per cent).

In seasonally adjusted terms, total dwellings fell by 9.1 per cent in November, driven by a 17.9 per cent decrease in private dwellings excluding houses. Private houses fell 2.6 per cent in seasonally adjusted terms.

The value of total building approved fell 0.8 per cent in November, in trend terms, and has fallen for 12 months. The value of residential building fell 1.6 per cent, while non-residential building rose 0.6 per cent.

HIA Blames Credit Supply

The HIA were quick to blame tighter lending, blaming the banks for tightening too far. No, HIA, they are now obeying the law!

“This weak result shows just how much the current credit squeeze is weighing on the home building sector.

“The credit squeeze is happening at the behest of the banks’ own lending practices which have been tightened above and beyond APRA’s requirements.

“HIA research has found that the time taken to gain approval for a loan to build a new home has blown out from around two weeks to more than two months.

“APRA’s decision late last year to lift its 30 per cent cap on banks’ interest-only lending is a welcome development, but more needs to be done to mitigate the growing risks of a hard-landing in the housing market.

“Policy makers and lenders alike need to be cognisant that ordinary home buyers are now facing blow- outs in loan processing times and also much greater rates of flat-out loan rejection. Today’s results show how this is weighing substantially on the new home building sector.

“We’ve long been anticipating the current downturn in new home building, but there is a risk it could develop more quickly and strongly than expected.

“In particular policy makers and lenders will need to respond judiciously to the pending release of the Banking Royal Commission’s recommendations.”

HIA Argues For MORE Credit

The Housing Industry Association (HIA) welcomed APRA’s removal of the 30% IO limit, but argues that banks are tightening beyond the APRA limits and still more credit is needed.

Actually, this is not really the case, rather it is reversion to more normal lending standards as defined by suitable lending.

The HIA are therefore advocating a loosening of standards back to the pre-royal commission and APRA conditions, where people got loans they could not afford and the industry was rife with poor practice and fraud. We should not aspire to return to such conditions again.

This is what they said:

“The removal of the restriction on interest-only lending is essential to addressing the concerning decline in credit growth for new housing,” said Tim Reardon, HIA Principal Economist.

“Credit growth across the market is the lowest it has been since the 1983 recession.

“Credit growth to investors is the lowest on record.

“Today APRA announced it is lifting its 30 per cent cap on banks’ interest-only lending. This is a welcome development in Australia’s mortgage market, but much more needs to be done to ease the current credit squeeze.

“APRA’s restrictions were designed to curb high-risk lending practices. Over the past 12 months ordinary home buyers have experienced significant constraints in accessing the appropriate level of finance to buy a home.

“The credit squeeze is happening at the behest of the banks’ own lending practices which have been tightened above and beyond APRA’s requirements.

“HIA research has found that the time taken to gain approval for a loan to build a new home has blown out from around two weeks to more than two months.

“HIA members are also reporting that almost half of loan applications are being rejected.

“APRA’s announcement sends an important message about the overall health and stability of the mortgage market which should be heeded by policy makers and lenders alike.

“With the Royal Commission scheduled to release recommendations early next year there is a risk that the credit squeeze may drag on into 2019. The residential construction sector is already cooling. Policy makers will need to proceed cautiously when responding to the Commission’s recommendations,” concluded Mr Reardon.

Credit Squeeze Puts Brake on Home Building

“An unexpected tight squeeze on credit for home buyers is accelerating the slowdown in building activity,” said Mr Tim Reardon, HIA Principal Economist.

HIA released its quarterly economic and industry outlook report today. The State and National Outlook Reports include updated forecasts for new home building and renovations activity for Australia and each of the eight states and territories.

“The credit squeeze that has been impeding investors for the past 18 months has expanded and is now restricting building activity across the market,” added Mr Reardon.

“APRA’s restrictions were designed to curb high risk lending practices but we are now seeing ordinary home buyers experience delays and constraints in accessing finance.

“This disruption in the lending environment is impacting on the amount of residential building work entering the pipeline. The effect on actual building activity will become more evident in the first half of 2019.

“The credit squeeze is weighing on a market that had already started to cool from a significant and sustained boom.

“If these disruptions to the home lending environment prove to be long lasting then we could see building activity retreat from the recent highs more rapidly than we currently expect.

“The decline in housing finance data shows that something in the lending environment has changed. Lending to owner-occupiers building or purchasing new homes fell by 3.6 per cent in September and is down by 16.5 per cent over the year.

“The year 2017/18 saw over 120,000 detached house starts. This is one of the strongest results on record. We expect new home starts to decline by 11.4 per cent this year and then by a further 7.4 per cent next year in 2019.

“With the prospect for the release of the Hayne Royal Commission’s findings to trigger further upheaval in the banking system, we need the banks maintain stable lending practices for fear of a destabilising influence on the housing market,” concluded Mr Reardon.