New home loans at GFC lows as supply crunch worsens

Having tumbled 3.4 per cent from a holiday-interrupted January, the figures, released as part of the ABS’ Lending to Households and Businesses data and building approvals data for detached houses and multi-units covering February, points to owner-occupiers and investors escaping the market, according to Housing Industry Association (HIA) chief economist, Tim Reardon.

“The impact of the RBA’s tightening cycle has been evident in weakening finance data for a number of months and this is now flowing through to building approvals that are also around decade lows,” Mr Reardon said.

Despite approvals for new homes rebounded between January and February, the economist noted they remain 13.6 per cent lower than they were 12 months earlier, while similarly, multi-unit approvals are 51.9 per cent below their February 2022 levels, compounded by an 8.4 per cent fall earlier this year.

He explained that “many projects [have] recently [been] delayed in the face of labour and material uncertainties.”

Alarmingly, the RBA’s rate hiking cycle, which paused at the board’s April meeting after it opted to hold the official cash rate at 3.60 per cent, has impacted lending for renovations, the sector “expected to hold up relatively well during this downturn,” which reported its weakest month in almost two years.

Australia’s central bank’s decision to halt its rate tightening cycle, currently the swiftest in national history, was met with collective sighs of relief from several property heavyweights, who, amongst other things, called for the break to be utilised to “take stock.”

Real Estate Institute of Queensland (REIQ) chief executive officer, Antonia Mercorella, said the break should provide consumers in Queensland, where loan activity sits at 18-year lows, “more confidence to proceed with building their dream homes.”

On the other hand, Real Estate Institute of Australia (REIA) president, Hayden Groves, welcomed the decision before conceding the nation is “fighting inflation at the same time we are fighting a severe housing shortage.”

With the 2023 Federal Budget looming, Mr Groves explained, “We need to move forward with programs of investment that physically deliver increased housing.”

Australia’s existing and future supply woes were further outlined earlier this week when the National Housing Finance and Investment Corporation (NHFIC) revealed a supply shortage of 100,000 homes over the next five years.

These national supply shortages are set to be compounded by an erosion of Australia’s large pool of building work, which was present last May when the cash rate increasing cycle kicked off, but has slowly been eaten into in the ensuing months. 

“This slowing in home building will undermine the achievement of the Australian government’s target of one million new homes over the next five years [outlined in last year’s federal budget] and with migration at record levels, affordability will deteriorate further.”                       

Not only is housing supply declining, demand has also increased, exacerbated by internal and overseas migration, to the point where Mr Reardon predicts the expected housing shortfalls over the next half-decade will “see the acute rental shortage worsening and unnecessarily high increases in home prices.”

Mr Reardon shared similar sentiments to those spouted by Hayden Groves in his cash rate reaction in calling for “every state and territory need to take action to attract more investment in the housing sector to improve the supply of new homes.” 

“The imposition of a range of punitive taxes on investors by state governments, combined with additional constraints through the FIRB and diplomatic disputes, has seen investors withdraw from the market,” he revealed.

He noted the cost of new apartments, cited by the NHFIC report as necessary to meet accelerating housing demand, is set to rise throughout the year as a result of “new regulatory costs imposed through building regulations” which add to existing higher labour and material costs.

“The combination of increased costs and less investment has seen apartment construction slow well below what is needed in a typical year of population growth,” he said.

“With migration expected to be at record levels in 2023, the shortage of housing will continue to deteriorate,” Mr Reardon concluded.