Drops in mortgage lending and dwelling approvals are set to stifle supply, HIA warns
The residential construction sector is in for more hard times as consumer appetite for housing dwindles thanks to repeated interest rate hikes.
Drops in mortgage lending and dwelling approvals are set to stifle supply in the coming months, even as rising migration increases demand, The Australian reported.
The Reserve Bank hiked rates by 0.25% on Tuesday – the 10th straight increase – bringing the cash rate to 3.6%. However, Housing Industry Association chief economist Tim Reardon doesn’t think the pullback by borrowers is due to a direct financial hit, The Australian reported.
“It is coming, but as yet, the response was saying the demand for home building has largely been sentiment-related, not their capacity to get there,” Reardon said last week at the HIA’s Brisbane Outlook event. “We do have a problem, which is their capacity to get a loan. As a consequence, we get this scenario: people with a 5%, 10%, 20% deposit are being forced out of the market.”
Housing construction is slumping after a period of heightened activity through the pandemic, according to data from The Australian Bureau of Statistics. The data showed a 35% year-over-year drop in new mortgages being taken out through January. Only 4,345 loans were issued for the construction or purchase of a new home in January, the weakest level since November 2008.
Approvals tumble
Building approvals for detached homes tumbled 12% compared to 12 months prior, while multi-unit approvals declined by 8.4%.
The last time detached house approvals dropped to these levels coincided with the Reserve Bank decreasing rates in June 2012, The Australian reported.
Reardon said that the typical economic correlations between approvals and commencements have been out of sync for the past several years due to a large volume of work in the pipeline. The number of homes approved but not yet commenced is significantly outnumbered right now by homes sold but not yet approved, The Australian reported.
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“The industry has been quite constipated and it appears that through the end of last year, completions were still less than commencements,” Reardon said. “This year, that’s not going to be the case; you’re going to finish more homes than you start. By March, I expect the building approvals numbers … that volume of work in the pipeline will be back to pre-COVID, pre-pandemic-type numbers, and all those correlations will start returning.
Reardon said that large-scale volume home builders in Sydney and Melbourne will probably feel the most impact from the slowdown, while boutique builders will be largely unaffected.
He also predicted that Queensland would see a pickup in medium- and high-density housing over the coming decade as it prepares to host the 2032 Olympics. However, this will not be enough to address the shortage of homes in the region, he said.
“There needs to be an enormous investment in infrastructure, and that comes with positives for this industry,” Reardon said. “But I don’t think that an Olympic Village is going to solve the affordability constraints or supply shortages for the southeast corner of Queensland. Definitely not for north Queensland, but it does provide a really nice line in the sand for governments to set out their plans.”
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