HIA – Page 10 – Digital Finance Analytics (DFA) Blog

New Home Commencements Have Peaked – HIA

New home commencements have peaked, but will remain at a very high level in 2015/16 according to new analysis from the Housing Industry Association (HIA). “It is likely that new dwelling commencements peaked at a record level of 215,000 in the financial year just passed, and indeed the risk is for this apex to be even higher,” said HIA Chief Economist, Dr Harley Dale. “This is an extraordinarily high level which is 15 per cent above the previous cyclical record of 187,000 dwelling commencements achieved in 1994.”

HIA expects a cyclical peak of nearly 214,500 new dwelling commencements for the 2014/15 financial year, although there is the risk that the 2015 calendar year delivers an even higher record. It is expected that both detached house and ‘multi-unit’ commencements have reached cyclical highs, but a further surge in unit construction could yet deliver a 2015 calendar year peak. Detached house commencements are expected to have reached a level of 113,700 in 2014/15, 9 per cent above the long term average. Multi-unit construction has shot the lights out, hitting a level 117 per cent above the long term average with the number of commencements expected to reach 100,747.

“The approaching down cycle is likely to be considerably smaller for detached house commencements than for multi-units. Governments’ policy failure means that there is unrealised demand for new detached housing due to a range of supply side constraints led by a lack of shovel ready land,” concluded Harley Dale.

Land Supply Shortages are Shutting Out Home Buyers – HIA

The HIA-CoreLogic RP Data Residential Land Report to the March 2015 quarter shows price growth accelerating as turnover falls sharply. The residential land price in Australia increased by 4.1 per cent compared with the previous quarter whilst residential land transactions fell by 5.2 per cent compared with the previous quarter. Higher land prices translate to more expensive housing, and is pricing new home buyers out of the housing market as well as capping the construction cycle.

“This is not a good combination – escalating residential land values and a related decline in sales volumes,” said HIA Chief Economist, Harley Dale. “The upcycle in detached and low density housing construction has been strong, without being stellar. The combination of significantly reduced turnover and strong price growth suggests that supply bottlenecks in residential land are intensifying. That is pricing new home buyers out of the housing market and capping the construction cycle at a lower level than would otherwise be the case.”

“The provision of adequate, affordable, shovel-ready land is a crucial element to addressing housing affordability pressures across the residential property market,” said Harley Dale. “More needs to be done to expedite supply in 2015/16. Removing the obstacles to affordable land supply is a core requirement of a successful taxation and federalism white paper reform process.”

During the March 2015 quarter, the residential land price in Australia increased by 4.1 per cent compared with the previous quarter. This represented an increase of 8.2 per cent compared to the same quarter of last year. to be 17.6 per cent lower than the same period 12 months earlier. The March 2015 quarter represents the third consecutive decline in land transactions in Australia.

According to CoreLogic RP Data research director, Tim Lawless, the trend towards fewer land sales has been evident since mid-2013 and is visible across each of the capital city vacant land markets. “The number of vacant land sales peaked over the June 2013 quarter and have since reduced by almost 30 per cent. To see the price of land consistently rising over the same time frame suggests low supply is the main driver of this price growth rather than a slowdown in demand.”

“Higher land prices translate to more expensive housing which is an unfortunate circumstance for those looking to purchase a detached house. Sydney stands out as the most expensive land market with a rate per square metre of $678, followed closely by Perth with a rate per square metre of $664.”

New Home Sales Falter in May – HIA

The HIA New Home Sales Report, a survey of Australia’s largest volume builders, recorded the first decline for 2015 in May. The four month winning streak came to a modest end in May 2015 with total seasonally adjusted new home sales falling by 2.3 per cent. The decline was driven by a 5.1 per cent dip in detached house sales, reflecting weaker monthly demand in four out of the five states surveyed. DFA observes that the rotation from houses to units continues to build momentum, in answer to the demand for investment property, where returns to builders are also higher.

The mature stage of the new home building cycle primarily reflects further momentum in the ‘multi-unit’ sector, together with persistence of healthy conditions in New South Wales and Victoria. New sales of multi-units increased by 7.6 per cent during the month to yet a new record level, with sales volumes up by 26.7 per cent over the three months to May. Meanwhile strength in detached houses sales is evident in NSW and Victoria, with growth in the May 2015 ‘quarter’ of 5.2 per cent and 6.2 per cent, respectively.

In the month of May 2015 detached house sales increased by 3.3 per cent in Queensland, but fell by 2.3 per cent in NSW, 9.9 per cent in Victoria, 5.2 per cent in South Australia, and 8.1 per cent in Western Australia. In the May 2015 quarter, detached house sales increased in NSW (+5.2 per cent) and Victoria (+6.2 per cent). Sales fell over the three month period in SA (-8.1 per cent), Queensland (-7.5 per cent), and WA (-1.3 per cent).

Stamp Duty One Part of a Bigger Problem for Housing – HIA

The residential building industry is being weighed down by excessive and inefficient taxation, beyond just Stamp Duty, says the Housing Industry Association (HIA).

In some states the total tax bill amounts to over 40 per cent of the final price of a new home, taxes on new housing are a brake on economic activity, and represent a constraint on housing affordability and labour productivity.

There is no question that Stamp Duty is one of the key offenders, with research undertaken last year for HIA by Independent Economics identifying it as is the most inefficient tax in Australia’s entire taxation system. As a tax on moving, it discourages households from relocation when this decision may better suit their needs in terms of size, location or employment opportunities. Unfortunately, the economy and the community do not get the best use out of the available housing stock. “However, there are many other taxes on new homes including developer infrastructure levies, which can be over $70,000 on a new house and land package, and which unfairly require new home buyers to fund community assets upfront.

Equally, GST is levied on new homes but not existing properties. Adding tens of thousands of dollars on a new home, GST creates a price differential between new and existing residential properties, which hits affordability, supply, employment and economic activity. Affordability is further eroded by the cascading effect of ‘taxing taxes’, whereby a tax such as stamp duty is levied on an amount that already includes a range of other costs. GST on infrastructure levies alone can add more than $5,000 to the final cost of a new home, while stamp duty on the total GST adds around $3,000. Infrastructure charges, GST and stamp duty add $140,000 and more to the cost of a new home in Sydney, while a plethora of other taxes, levies, fees, changes, rates and duties take the total tax grab to over 40 per cent of a new house and land package.

Taxes add more than $250,000 to the price of a new home in Sydney, accounting for 40 per cent ($1,350 per month) of repayments for the life of a home mortgage. Incredibly, in supplying shelter for Australians, residential building contributes 13 per cent of all GST revenue collected by the Commonwealth. Sadly, that taxation revenue drives up the cost of housing.

New Home Sales at Four-Year High – HIA

The latest result for the HIA New Home Sales Report, a survey of Australia’s largest volume builders, shows strong growth in March 2015, taking sales volumes to their highest level since early 2010. Total seasonally adjusted new home sales increased by 4.4 per cent in the month of March, with an 11.3 per cent rise in multi-unit sales and a 2.6 per cent rise in detached house sales.

In March 2015 private detached house sales increased by 5.9 per cent in Victoria, 4.2 per cent in New South Wales and also 4.2 per cent in Western Australia. Private detached house sales declined by 5.8 per cent in South Australia and by 2.3 per cent in Queensland. In the March 2015 quarter, detached house sales increased in Victoria (+5.2 per cent) and Queensland (+4.3 per cent). Elsewhere sales declined: in WA (-6.4 per cent), NSW (-3.6 per cent) and SA (-1.4 per cent).

Residential Building Hotspots – HIA

The latest HIA/ACI Population and Residential Building Hotspots Report shows Western Australia again dominating the latest league table, with Victoria and New South Wales also strongly represented. Nationally, a “Hotspot” is defined as a local area where population growth exceeds the national rate and where the value of residential building work approved is in excess of $100 million. Local areas featuring on the Building Momentum shortlist have demonstrated consistently strong rates of population growth in recent years in addition to an increase in the estimated value of new home building work approved in 2014/15.

Six of the top twenty Hotspots were in Western Australia, followed by Victoria with five and New South Wales with four. For a second consecutive year, it was the Australian Capital Territory that was home to Australia’s number one building and population Hotspot – the territory’s South West area. Second place was the Northern Territory’s Palmerston South area. The ACT was also home to Australia’s number three Hotspot, the suburb of Crace.

This year’s Hotspots report also provides a Building Momentum shortlist which identifies a number of regions where further upward momentum in building activity is set to occur in 2015. Strong potential is evident for local areas in NSW in particular, while WA and Victoria also feature quite broadly. In contrast, the ACT does not feature on this shortlist, signalling that the experience of recent years – where a number of ACT areas have been strongly represented among the Nation’s Top 20 Hotspots – is unlikely to be replicated next year.