New home finance confirms ongoing tepid recovery

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By Leith van Onselen

Today’s mixed housing finance data for April, released by the Australian Bureau of Statistics (ABS), contained some positive news for the construction industry, with the number of finance commitments for new dwellings and construction stabilising at a relatively high level (flat over the month) to be 17.9% higher than April 2012 and tracking well above the 5-year moving average (5YMA):

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The recovery is more obvious when the data is plotted on a rolling annual basis, which shows a clear acceleration of commitments over the past year (see next chart).

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As shown in the next chart, the recovery in finance commitments for new dwellings and construction is being driven primarily by big gains in Western Australia. However, Victoria has also picked-up over the past year, which should strengthen once first home buyer (FHB) incentives favouring newly constructed dwellings over pre-existing dwellings come into effect from 1 July. New South Wales has shown a significant uplift since FHB incentives were changed in favour of new dwellings in October 2012, however, similar changes appear to have had minimal impact on new home finance in Queensland, which has flatlined over the past six months. Note, rolling annual figures have been used as the state-based data is not seasonally-adjusted, therefore, monthly comparisons are affected heavily by seasonality, which makes comparisons problematic.

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Overall, the ABS data confirms that the housing construction industry is recovering, although its apparent strength remains somewhat out of step with new home sales and building approvals data, which suggest a more subdued recovery is taking place.

For its part, the Housing Industry Association (HIA) appeared largely unimpressed by today’s finance figures, making the following comments via a media release:

“Today’s figures show that new home lending for owner occupiers is tracking higher overall, but at a very moderate rate from a low base,” said HIA Senior Economist, Shane Garrett. “For owner occupiers, the aggregate number of loans for the construction and purchase of new homes was flat during April 2013, itself a disappointing outcome, but the number was 17.9 per cent higher than twelve months earlier.”

The number of seasonally adjusted loans for construction barely moved in April, rising by only 0.2 per cent, while loans for the purchase of new dwellings eased back by 0.4 per cent. The number of loans for established homes net of refinancing rose by 1.0 per cent during April and was 4.9 per cent higher than a year earlier.

“…residential investment in construction continues to languish near decade lows, a pointer to the disincentive to new home building attributable to excessive tax and regulatory costs,” warned HIA Senior Economist, Shane Garrett.

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.