New house sales have continued to fall in Australia with a decline of 4.4% in May with experts saying that tighter lending is affecting the new build market.
Overall the first half of 2018 has seen a renewed downward trend in new house sales and they are now 12.8% below the peak of the market in December 2017, according to the latest analysis report from the Housing Industry Association (HIA).
A breakdown of the figures show that new home sales fell by 6.8% in New South Wales, by 5% in Queensland, by 4.6% in Victoria, by 2.4% in Western Australia and by 0.2% in South Australia.
Tim Reardon, HIA’s principal economist, pointed out that the figures from its regular survey of the nation’s largest volume home builders in the five largest states provides an early indication of trends in the residential building industry.
‘Access to finance has become the barrier to ongoing growth in home sales. The availability of credit has tightened over the past 12 months with banks responding to the decline in house prices and the Banking Royal Commission by limiting lending to new home buyers,’ he explained.
‘Australia’s population growth has slowed over the past three quarters in response to tighter visa requirements that have constrained inward migration. And for the first time in this cycle we are seeing sales declining in Melbourne,’ he said.
‘The new home market in Melbourne has been exceptionally strong over a number of years and we are now seeing a very modest slowdown in activity. While market conditions are slowing in Melbourne, building activity will continue to be solid given the very large volume of work still in the pipeline,’ he added.
While the impact of the tighter constraints on finance are expected to ease over the rest of the year and the HIA is forecasting that detached house starts will rise slightly in 2018 following a 2.8% decline that in 2017, but then fall again.
‘Beyond that temporary lift, we expect the downturn in detached house building to properly take root in 2019 and house sales appear to be providing a very early indication of this occurring,’ said Reardon.
Meanwhile, buyers in Australia are paying record amounts in stamp duty, some $21 billion in the 2017/2018 financial year, and this is expected to rise over the next few years.
The figures from the HIA’s stamp duty watch report show that overall revenue from the property tax has doubled over the last eight years and senior economist Shane Garrett warned that it is adding considerably to the cost of buying a home and represents a real setback for affordability.
He pointed out that the latest set of state Budgets forecast that stamp duty revenues could rise by another 11% over the next four years, bringing in $23.1 billion annually by 2021/2022.
‘State governments are more dependent on stamp duty than at any time in the last decade. Stamp duty is notoriously unstable and Australia’s largest states are heavily exposed to any downturn in duty receipts should economic conditions change,’ said Garrett.
‘Housing affordability and the sustainability of Government finances would both be winners if stamp duty was replaced by better revenue raising designs. Australian Governments really need to tackle this issue once and for all,’ he added.
Meanwhile, the number of new homes approved fell by 1.5% in May 2018, according to data released by the Australian Bureau of Statistics (ABS). A breakdown show they fell by 4.2% in Queensland, by 2.7% in Victoria, by 2% in Tasmania and by 0.8% in Western Australia.
But they increased by 4.3% in South Australia, by 2.8% in the Northern Territory, by 1.5% in the Australian Capital Territory and were flat in New South Wales.
According to Tim Reardon, HIA principle economist, the modest reduction in approvals is consistent with other data showing that the housing market is cooling from a record high volume.
‘The market is cooling for a number of reasons including a slowdown in inward migration since July 2017, constraints on investor finance imposed by state and federal governments and falling house prices,’ he said.
‘Finance has become increasingly difficult to access for home purchasers. Restrictions on lending to investors and rising borrowing costs have seen credit growth squeezed. Falling house prices in metropolitan areas have also contributed to banks tightening their lending conditions which have further constrained the availability of finance,’ he explained.
But he pointed out that irrespective of all of these negative influences, the volume of approvals of new detached houses remains the strongest overall conditions seen in 15 years with approvals during the three months to May some 3.1% higher than a year ago.
‘We expect the trend of slowing building approvals to be modest throughout 2018 as employment and economic growth remain solid,’ he added.
