Call to reform policy levers due to uncertain interest rates

by | May 7, 2024

Home Industry Association logoHousing Industry Association (HIA) Senior Economist, Tom Devitt, recently reported that Australia is closing in on the weakest two years of lending for new home building in over two decades. The Australian Bureau of Statistics (ABS) released the Lending to Households and Businesses data for March 2024, providing statistics on housing finance commitments.

“The number of loans issued for the construction or purchase of new homes was flat in March (up 0.1 per cent), leaving the first three months of 2024 virtually unchanged compared to the same quarter last year (down 0.1 per cent),” said Mr Devitt.

“This means the last 20 months of new home lending has been weaker than any equivalent period since the ABS started this data series in 2002.”

“It is pointing to the weakest year of new house commencements in over a decade at the same time that record population growth is exacerbating Australia’s pre-existing and acute shortage of housing,” he said.

Mr Devitt said recent inflation data came in stronger than expected and has pushed back expectations of any interest rate cuts potentially into 2025.

“This reinforces the need to pull other policy levers to reduce the costs of construction and finance and enable a recovery in new home building. Tax reform is needed to bring investors back to the new housing market, especially with respect to the punitive surcharges imposed on foreign investors,” Mr Devitt said.

“Macroprudential rules need to make it easier for gainfully employed Australians to obtain a mortgage. More land needs to be made available for residential development of all types, in both our greenfield areas and existing suburbs close to jobs and transport.

Changes to building codes are reportedly further inflating the costs of construction and need to be paused according to Mr Devitt.

“It is possible to build the Australian Government’s target of 1.2 million homes over the next five years, but it will require significant lowering of taxes on home building, easing pressures on construction costs, and decreasing land costs,” concluded Mr Devitt.

The Lending to Households and Businesses data for March 2024 showed the total number of loans issued in the three months to March 2024 for the construction or purchase of new homes rose in Western Australia by 29.7 per cent, compared to the previous year. This is followed by South Australia (up 4.6 per cent) and Queensland (up 0.5 per cent).

The other jurisdictions saw declines in new home lending compared to the previous year, led by the Northern Territory (down 45.3 per cent), followed by the Australian Capital Territory (down 39.9 per cent), Tasmania (down 17.9 per cent), Victoria (down 9.9 per cent), and New South Wales (down 5.6 per cent).