Macro Investor: What’s ailing new home construction?

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The latest new home sales data for September, released by the Housing Industry Association, revealed an industry under increasing pressure. According to the HIA, new home sales slumped to their lowest level in 18 years.

The slump in new home sales prompted Matthew Quinn, the head of Australia’s largest diversified property group, Stockland, to declare that the new home market is the worst that he has seen in more than 20 years, despite conditions that would normally stimulate activity, such as low unemployment, low interest rates, an under supply of housing, and low rental vacancy rates. Quinn also noted that the volume of deposits received by Stockland for house and land packages has fallen significantly over the past two years.

The slump in new home sales has occurred despite efforts by Australia’s property developers to reinvigorate the market by offering generous incentives to new buyers. Such incentives have included giving away new cars, offering large cash-backs, free landscaping, or paying a buyer’s energy bills for three years when they buy a new house and land package.

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State governments have weighed in with generous grants and the RBA has slashed interest rates by 150bps, yet still the sector languishes. So what gives?

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About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.