Tag: HIA

Second Monthly Fall for New House Sales – HIA

The HIA says sales of new detached houses declined for the second consecutive month during February 2018 overall, but the markets were patchy, based on results contained in the latest edition of their New Home Sales report – a monthly survey of the largest volume home builders in the five largest states.

Despite the fact that the overall volume of sales declined during February, reductions only occurred in two of the five states covered by the HIA New Home Sales Report – the magnitude of these reductions outweighed the increases which took place elsewhere. The largest fall was in Queensland (-16.3 per cent) with a 9.9 per cent contraction recorded in WA. The largest increase in sales was in NSW (+11.7 per cent), followed by SA (+10.3 per cent) and Victoria (+4.8 per cent).

“The decline in new house sales during the first two months of 2018 is consistent with our expectation that residential building activity will move lower over the next 12 months.

“Tighter restrictions around investor lending and heavier obstacles to foreign investor participation are contributing to the weaker conditions in new dwelling construction.

“New house sales in NSW saw decent growth during February. There were several favourable changes made by the NSW government relating to First Home Buyers last year and these have been beneficial to the state’s housing industry.

“Our forecast is that new home sales will trend downwards during 2018 in line with new home building activity. We expect things to bottom out in late 2019 before modest growth resumes,” concluded HIA Senior Economist Shane Garrett.

Government Policy Contributes to Affordability Problems – HIA

“The current housing affordability crisis is the product of two decades of policy neglect,” HIA Managing Director Shane Goodwin said today.

“It is the core issue that HIA has championed fixing, and is responsible for the affordability challenge facing Australian cities.

“For too long governments have chosen quick fix options to the very long term problem of housing affordability. Australia needs brave and bold policies that go to the heart of the affordability problem,” Mr Goodwin said.

“We need to resume the discussion around tax especially where it cascades applies to land and housing and put an end to upfront taxes that are keeping so many first home buyers out of the market.

“We need to get serious about planning reform, these things are the keys to solving housing affordability which have largely been overlooked by State and Federal Governments.

“We need all tiers of government back at the table, driving these discussions and implementing change.

“HIA has said for a long time now that the problem of housing affordability in simple terms, comes down to supply and demand – more land needs to be freed up, and the punitive taxes like stamp duty that come with buying a home need to be done away with.

“State governments should take on policies like fixing planning rules to allow more homes to be built in inner and middle-ring suburbs of our largest cities, and continue to support the supply of new land around
our cities to achieve the right balance of housing supply.

“It is pleasing that today’s Grattan industry report mirrors HIA call for reform, but HIA cautions against any changes to migration.

“The problem of housing affordability is one of supply and demand – houses will not get built if the population doesn’t grow, and the main driver of population growth in Australia is migration.

“Migration issues aside, HIA is urging State and Federal Governments to get moving on reform, rather than sticking to the current politically safe and largely ineffective measures of dealing with housing affordability,” Mr Goodwin concluded.

A good point, but we also observe that availability of low cost credit, and weak lending standards has also driven affordability lower. This must also be addressed, or else more supply just means bigger debts, and more trouble for households. Time for some joined up thinking!

The Better Affordability Silver Lining To The Home Price Clouds

The HIA Housing Affordability Index saw a small improvement of 0.2 per cent during the December 2017 quarter indicating that affordability challenges have eased thanks to softer home prices in Sydney where they are now slightly lower than they were a year ago. This makes home purchase a little more accessible, particularly for First Home Buyers. [DFA Editors note: though offset by tighter lending criteria now].

The HIA Affordability Index is produced quarterly and measures the mortgage repayment burden as a proportion of typical earnings in each market. A higher index result signifies a more favourable affordability
outcome.

Shane Garrett, HIA Senior Economist said

Softer home prices in Sydney contributed to improved housing affordability during the final quarter of 2017.

Affordability conditions in Sydney are still more challenging than any other city. After Sydney, Melbourne has the second highest mortgage repayment burden.

It is often overlooked that affordability conditions are favourable in the markets outside of Sydney and Melbourne. Housing prices are more affordable in the other six capital cities today than has typically been the case over the past 20 years – primarily due to very low interest rates. Housing affordability is still a very acute problem.

To win the affordability battle, governments need to make tough decisions on reducing the tax burden on new home building, speeding up the planning process and releasing new residential land in a more timely fashion.

Residential land prices hit another new high

The latest HIA-CoreLogic Residential Land Report shows that the median vacant residential land lot price rose nationally by 6.5 per cent during the September 2017 quarter to reach $267,368.

“Yet again, the price of residential land in Sydney and Melbourne has touched fresh all-time highs.

“Transactions on the land market continue to drop, indicating that supply is simply not matching demand sufficiently.

“The high cost of new residential land is at the heart of Australia’s housing affordability crisis.

“The housing industry’s ability to ramp up the supply of new dwellings as demand dictates is hampered by the inconsistency of the land supply pipeline. The time it takes for land to be made available to builders is unnecessarily long,” concluded HIA Senior Economist Shane Garrett.

According to Eliza Owen, CoreLogic’s Commercial Research Analyst, “The 6.5 per cent acceleration in vacant residential land prices suggests strong demand, even in the context of our largest residential markets passing peak growth rates for the current cycle. The CoreLogic Hedonic Home value index is showing a 1 per cent quarterly decline in capital city dwellings in the three months to January, led by the Sydney market which saw a 2.5 per cent decline.

“Despite the softening in capital growth, land prices were driven higher by long term confidence in some Australian metropolitan markets. Indeed, developers may act counter-cyclically to secure vacant land on the fringe of metropolitan areas before the next upswing. This is reflected in Melbourne, which saw over one in five of the 14,704 vacant land transactions in the year to September.

“In Victoria, CoreLogic development data indicates that 48.6 per cent of residential subdivisions in 2017 commenced on the fringes of Melbourne, such as in Hume, Whittlesea and Wyndham. This further demonstrates the high levels of demand for housing that is connected to the facilities and employment opportunities of major cities,” concluded Eliza Owen.

More On Incentives For First Time Buyers In Victoria

The Victorian Government has reaffirmed their intent to shortly accept  applications for its shared equity scheme known as HomesVic from up to 400 applicants. This was first announced in March 2017.

As we said at the time:

… our analysis not only here but overseas is that they simply lifts prices by the same amount. It is a zero sum game.

Whilst we understand the political agenda, this move is unlikely to improve housing affordability and access to property.

Of course many will highlight that fact that buyers will be entering the market as prices being to go south, and might even suggest this is a further attempt to keep the property market afloat.

The scheme will allow young people to purchase a home with the state government providing up to 25 percent of the purchase price – reducing the size of the mortgage that must be taken out. When the house is sold, the government recoups its share of the proceeds.

The $50-million initiative aims to make it easier for first-home buyers to enter the market by reducing the size of their loan, hence reducing the amount they need to save for a deposit.

The initiative targets single first-home buyers earning an annual income of less than $75,000 and couples earning less than $95,000.

Eligible applicants must buy in so-called “priority areas” which include 85 Melbourne suburbs, seven fringe towns and 130 regional towns and suburbs.

In Melbourne, the list includes suburbs around Box Hill, Broadmeadows, Dandenong, Epping, Fishermen’s Bend, Footscray, Fountain Gate, Frankston, LaTrobe, Monash, Pakenham, Parkville, Ringwood, Sunshine and Werribee.

The scheme is not available in most of Melbourne’s bayside suburbs, the leafy inner eastern suburbs or some pockets of the inner north.

The state government said the locations were chosen in growth areas where there was a high demand for housing and access to employment and public transport.

Regional centres on the list include Ballarat, Bendigo, Castlemaine, Geelong, La Trobe, Mildura, Seymour, Shepparton, Wangaratta, Warrnambool and Wodonga.

Some of the locations are where mortgage stress, on our modeling is highest – we will release the January results next week.

The move was welcomed by HIA – “it is a positive scheme that addresses the rising problem of housing affordability and will help see young people achieve the Aussie dream of owning their own home faster,” senior spokesperson for HIA Kristen Brookfield said.

“HIA figures show that the typical stamp duty bill on homes in Victoria has risen by 4,000 percent since 1982. With the median price of a Melbourne dwelling at $720,417, this makes buying a house a pipe dream for so many low income young people.

“Buying a house gives an individual a sense of great pride and security. Although the HomesVic scheme is currently only open to 400 applicants, it is still a good start and we will watch its progress with keen interest,” Kristin Brookfield concluded.

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.