Construction loans for new homes at 20-year low: HIA

Based on the latest lending data released by the Australian Bureau of Statistics (ABS), the number of loans issued for construction or purchase of new homes increased by 3.6 per cent in February compared to the previous month.

Despite the increase, the number of loans issued for these purposes over the past year has remained at its lowest level in over 20 years, according to Housing Industry Association (HIA) chief economist Tim Reardon.

“[L]ending to build and purchase a new home remained 3.6 per cent lower in the three months to February 2024 than at the same time last year,” Reardon said.

“This is a deeper and more sustained downturn in lending for home building than any other period observed in the past 20 years.

“This low level of lending is consistent with other leading indicators of home building activity, such as new home sales and building approvals, which continue to signal an ongoing slowing in the volume of homes commencing construction.”

Reardon attributed the last cash rate increase by the Reserve Bank of Australia (RBA) as the “primary cause of this poor result in new home lending” as higher interest rates are compounding the effects of the rise in the cost of construction caused by elevated land, labour, and material prices.

During the three months to February 2024, the total number of loans issued for the construction or purchase of new homes (in original terms) rose in Western Australia by 28.2 per cent year on year, followed by South Australia (6.7 per cent) and Queensland (0.5 per cent).

The Northern Territory led the year-on-year declines at 34.3 per cent, followed by Tasmania (31.8 per cent), the ACT (27.9 per cent), NSW (12.4 per cent), and Victoria (5.9 per cent).

“The slowing in lending is most evident in the largest states of New South Wales and Victoria. Since interest rates were raised in May 2022, new home lending in these two states have fallen by more than one-third,” Reardon added.

“The slowing in home building activity appears set to continue and will drag on economic growth through the rest of this year,”

Meanwhile, Master Builders Australia has released its industry forecasts for building and construction in 2024, revealing that Australia “is on track” for a 110,000 homes shortfall.

Master Builders Australia has forecast 1,087,325 new home starts from 1 July 2024 until 30 June 2029.

Master Builders chief executive Denita Wawn said while the federal government has announced a number of “significant housing measures” focusing on increasing housing supply, there are still issues hindering these measures.

“[C]onstraints on the supply side like workforce shortages, industrial relations changes and a poor planning system counter the full effectiveness of these measures,” Wawn said.

“Productivity in the industry has fallen 18 per cent over the last decade. It’s clear that governments need to expedite the rollout of planning reforms to reduce the high costs and time it takes to build.”

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