Construction loan volumes hit record low in 2023

The number of owner-occupiers taking out a loan to construct a dwelling fell to a record-low level last year, figures from the Australian Bureau of Statistics (ABS) have shown.

According to the Lending Indicators data from the ABS, just 32,116 new owner-occupier mortgages were issued last year for the construction of dwellings (or 32,420 when seasonally adjusted).

This represented the lowest annual number of construction loans issued to owner-occupiers since the ABS began collecting this data in 2002 and is less than half the volume of loans issued to owner-occupiers to build new homes than in 2021 – when the HomeBuilder scheme resulted in a surge of activity.

Indeed, the only month to have seen more than 3,000 construction loans issued to owner-occupiers for the construction of a new home was in June 2023 (3,028), marking the only time that this has happened.

The month of December 2023 saw a 5 per cent drop in the number of construction loans on the month prior, representing a 6.3 per cent drop on an annual basis. On a values basis, construction loans were down 7.4 per cent on December 2022 values and 0.5 per cent lower than in November 2023.

The figures confirmed what the monthly data had been showing over the course of the year: fewer borrowers have been looking to build new homes in 2023 and fewer properties are being approved for construction.

Reacting to the news, the senior economist of the Housing Institute of Australia (HIA), Tom Devitt, said: “The steepest RBA rate hiking cycle in a generation has compounded the elevated costs of home building, seeing potential home buyers squeezed out of the market and fewer new homes commencing construction.

“This lack of new work means the pipeline of new housing supply approaching completion is now shrinking rapidly.”

He noted that – when including the number of loans issued for new homes – there were only 51,570 loans issued in 2023.

“The ABS has been collecting data on lending for new homes since 2002, and [this] data shows the lowest number of these loans being issued on record,” added Mr Devitt.

“At this rate, Australia will not commence enough housing to meet National Cabinet’s target, falling well short of the 1.2 million new homes they want to see built in the next five years.”

The HIA economist suggested that “immediate action” was needed by governments to improve planning regimes, reform taxes on housing, release more shovel-ready land, reduce red tape, and address skilled worker shortages.

“At a time of record population growth and acute shortages of rental accommodation, a dwindling supply of new homes threatens to worsen Australia’s housing crisis,” he concluded.

Speaking earlier this month, Commonwealth Bank of Australia (CBA) economists Stephen Wu and Harry Ottley commented that at just over 13,000 new buildings approved, the level of approvals nationally “is near decade lows”.

“Higher interest rates, building costs and constraints in the construction industry are a disincentive for developers to invest in new projects,” they said.

“The more significant planning process involved in larger projects also means that multi-unit dwelling activity takes longer to respond to stimulatory policy such as the monetary easing we expect later this year.

“This is likely contributing to approvals for apartments and town houses looking a little soggier than detached dwellings at this juncture.

“Unusually in this cycle, the pandemic boom in approvals has not yet translated into a material rise in completions and thus more supply coming online.

“This has contributed to the housing shortage Australia currently faces amid strong population. It does however mean that despite the weak approvals numbers at present, there remains a large pipeline of construction work to be done.

“Our view is that approvals will pick up albeit marginally this year in response to a more gradual increase in the cash rate in H2 23 and policy being on hold before easing in 2024.”

[Related: New mortgage lending drops for first time in 5 months]