Credit squeeze is slowing new home building and sales in Australia

The credit squeeze in Australia is continuing to slow new home building and sales have fallen steadily throughout 2018, according to a new analysis.

Constraints on access to finance have further impaired sales in recent months, says the new home sales report from the Housing Industry Association (HIA) which looks at the largest volume home builders in the five largest states.

The number of sales during the three months to October this year are down by 10% compared with the same time last year. ‘In the market for established homes the credit squeeze has been reflected in a material drop in transaction volumes and falling prices. In the new home market we are seeing fewer new builds going ahead,’ said Geordan Murray, HIA acting principal economist.

The report shows that private detached house sales in October increased in two states, by 4.9% in Victoria and by 2.5% in Queensland. New house sales declined in all other mainland states, with sales down by 4.9% in New South Wales, down 5.6% in South Australia, and by 10.7% in Western Australia.

‘When APRA imposed tighter rules on mortgage lenders at the height of the cycle they were aiming to head off any growth in risky lending before it became a problem. To that extent, the added oversight has done its job but the tighter lending environment is now stifling residential building activity,’ Murray said.

He explained that buoyant housing markets in Melbourne and Sydney have provided a particularly good environment for residential building over recent years, but we are now in a new phase of the housing cycle.

‘The housing market has softened considerably over the second half of 2018 and it will be increasingly challenging for these two states to continue outperforming. In the wake of the resources investment boom the Northern Territory and Western Australia have both been experiencing very challenging conditions for residential building,’ he explained.

‘While conditions in Western Australia appear to have stabilised, albeit at very low levels the path to a recovery will a long one. There are signs of improving conditions in the broader state economy but these are yet to translate into any improvement in residential building,’ he added.