HIA blames boogie man for weak new home sales

The HIA has an interesting new report out this morning. the report is long on rhetoric but rather short on evidence, sadly. It offers the following reasons for the struggle reinvigorate new home sales:

Are The Ingredients There For A Recovery?
At face value the ingredients are there for a recovery in new home building activity.
Interest rates are lower, a dire lack of rental stock is adversely affecting both availability and affordability, and incentives are in play for first time new home buyers in New South Wales, Queensland, and most recently South Australia. Furthermore, some housing policy reform initiatives are in the pipeline in NSW.

These ingredients are evident at a time when the base for a recovery is a recessionary level of new home building activity.
There are, however, also considerable headwinds and the variety of factors operating to constrain a new home building recovery is wider than has been evident in previous cycles.

Firstly, there is the interest rate situation. Lower interest rates should assist in driving a new home building recovery and possibly some renewed growth in large renovation projects. However, interest rate reductions are not providing the same kick to residential construction as has previously been the case. The lack of full interest rate cut pass through to mortgagees and businesses means that lower official interest rates are not being fully reflected in an equivalent decline in interest rate payments on private debt.

Secondly, partly driven by the above situation, and partly driven by the general almighty scare people felt from the GFC, households are firmly in deleveraging mode (a process that admittedly started prior to the GFC). In other words, households are focussing on paying down debt at an accelerated rate. This situation won’t last forever, but based on historical experience it is a process that still has some way to run.

A third constraining factor is the seemingly incessant talk of a housing bubble. This particular focus on fiction unnerves potential home buyers (and renovators) and therefore reduces construction activity.

Scaremongering about a housing bubble also contributes to a fourth factor – widespread undervaluation of residential property. There is a relatively pervasive (yet unfounded) fear of future significant price correction and this is adversely influencing current property valuations.

This undervaluation and the wider issue of tighter credit supply post the GFC manifests itself in commercially viable residential projects failing to obtain the finance to get off the ground. This is now a very large supply side constraint amongst a plethora of longer running constraints which have been building up for 20 years now (see below). Tighter credit conditions for households also play a constraining role, but the key breakdown occurs on the development (supply) side.

Finally there is the fundamental supply side constraints themselves which have been accumulating for a long time. Years of inadequate land supply, zoning and planning delays, excessive regulation, GST levied on new but not existing property, to name just a few factors, are reflected in new housing being the second most heavily taxed sector of the Australian economy (there are a total of 111 sectors).

Even if other constraints are reduced or removed, these supply side constraints will prevent a sustained new home building recovery.

It is the banks and their valuers that determine valuations and their input into credit availability. Therefore, based upon the HIA’s argument, the banks believe we have a housing bubble. Or the banks are busy listening too much to other folks who believe we have a housing bubble. Maybe the regulators? I’m actually not sure who the HIA is having a go at here. The boogie man perhaps!

The HIA might be better served looking at its own constituency. Developers are all madly offering special deals on new home packages that almost universally offer bonus goodies, like a new car, to win clients. The problem is that that leaves the face value of the property above the market value, meaning the buyer still has come up with a big deposit to cover the LVR gap.

Developers need to cut prices, then the credit issue (for the demand side at least) may resolve.

New Housing Conditions Nov 2012

David Llewellyn-Smith
Latest posts by David Llewellyn-Smith (see all)

Comments

  1. “Developers need to cut prices, then the credit issue (for the demand side at least) may resolve”

    It’s either that or they can continue to go bust!

        • reusachtigeMEMBER

          I know, but when they’ve got their industry body out there spewing this rubbish it’s hard to feel sorry for them. Lower your prices if you want to make sales! Economics 101. The problem is not with your customer, it’s with you!

    • Cut prices????

      The horror the horror!

      Don’t you realise that any reduction in house prices will end civilisation as we know it and any sign of it must be snuffed out with interest rate cuts.

      The sooner the price reset is forced through with new lower costs land supply and less red tape and paper shuffling delay the sooner construction activity (by small developers in particular) will take off to meet the enormous demand for lower cost housing where people want to live.

  2. As I scrolled down and read the headline, I was expecting to see a picture of Michael Jackson appear. 😀

  3. This made me smile, it is so comical, as you pointed out. Thanks H&H.
    Scaremongering about a housing bubble also contributes to a fourth factor – widespread undervaluation of residential property. There is a relatively pervasive (yet unfounded) fear of future significant price correction and this is adversely influencing current property valuations.

    • reusachtigeMEMBER

      Their product isn’t selling because it has widespread undervaluation. Increase the price so it will sell then. Hmmm, makes sense?

      • THAT particular point made no sense at all to me. If there’s undervalued housing in Australia then where is it? Apart from places in economic decline like Whyalla, Elizabeth etc I can’t think of anywhere that ‘undervalued’ housing might exist.

  4. From HIA’s own new homes data.

    Supply – 12,000p/m (for the last 3 years)
    Demand – 5,000p/m (current)
    Price – not moving(even though block sizes are shrinking)

    Do the HIA not read their own data?

    Assuming continuing supply levels, if price does not move to stimulate demand, expect severe market shocks.

    The Banks and the valuers can see this. Australand can see it. The HIA should be counselling its members to clear the growing stockpile by price adjustment before it does severe damage, not shooting the messenger.

        • mav – what happens between the cup and your lips, is a bit of dribble.

          You will get areas of land subdivisions that are not selling, and an oversupply of units in some areas, but dreams of thousands of empty new homes are just dreams.

          Humour me, show me where these great swathes of completed and unoccupied houses are.

          • Ah yes, quite true there are unwanted homes in Ireland. The commute time to work would be a little long for me and the travel costs far too high. Perhaps I could FIFO – the frequent flier points would be nice though.

          • TP has already provided the HIA statistics. Your dribble in response is a narrative that suits your worldview, but has no basis in reality.

            Now can you tell us which of your contradictory comment is true?

            There are no growing stockpiles.

            OR

            You will get areas of land subdivisions that are not selling, and an oversupply of units in some areas
            ?

            Hint: Even a dunderhead would surmise that:

            Land subdivisions/units that are not selling = Growing stockpile.

          • Houses mav, we are discussing houses.

            That isn’t vacant land, it isn’t a home unit, it’s a H-O-U-S-E.

            Perhaps before you become unnecessarily abusive again you might stop to consider?

          • Start at the top of this thread – we are discussing HIA statistics. Period. Don’t pretend otherwise and shift the goal posts.

            Abusive, eh? Again, drop the pretence at innocence. I didn’t bring in stuff like “your dribble” into this discussion. You did.

          • The thread is on new home sales, Patrician was quoting numbers for housing supply and housing demand, but we aren’t talking about houses?

            How does that work?

            We always have a stockpile of land, they don’t make it while you wait you know. The baker does that with bread as well, same for carrots at the green grocers.

          • Peter, let me break it down to you gently and slowly:

            1. Supply == TP is talking about dwelling approvals pm
            2. Demand == dwellings sold pm

            Last I checked, dwelling == houses/homes/units… NOT land/campervans/tents

            SO either HIA is lying about these figures
            OR
            As fish bulb shows, there are an awful lot of growing unsold stockpile of new dwellings

          • Thanks fishbulb – yes I have seen that – it’s out at Yamanto – no surplus there I’m sorry, it’s a very fast growing area of SEQ.

            mav – Oh it’s now dwellings – nice side step.

            Only commenters on this site think that there is an oversupply, so either commenters here are the only truly informed people in Australia, or they are wrong.

            HHMMmm – let me think….

          • If you need more proof, I will have to take a camera and shoot the “For Sale” boards for Sydney North shore units that are still around 3 years after construction.

            Meanwhile, some sold units in the same building are now being re-sold much below their OTP price!!

          • Only commenters on this site think that there is an oversupply, so either commenters here are the only truly informed people in Australia, or they are wrong.

            AFAIK, commentators quoted HIA statistics.

            But do keep trying to wriggle out of this one with abuse and veiled insults.

          • well you were talking about new housing starts, not unit developments, but it’s not a point worth labouring.

            Yep, a couple of units on the North Shore, one here, one there – it all adds up.

            But where are the thousands that you allude to? Must be somewhere – have you looked under the bed?

      • “There are no growing stockpiles.”

        That’s it?

        Care to reconcile your claim with the HIA data?

  5. Now watch the MSM describe this report as a nugget of knowledge with the mandatory Harley Dale quote on the need for government to “stimulate”.

    The parts of MSM which depend on house and holes is brain dead.

    • reusachtigeMEMBER

      Next they’ll be asking the gubbermint to ban negative comment about housing on the internet because it is creating “widespread undervaluation” of housing that should rightly cost more for people to buy!

      • Economics-based attacks by contrarians against the politic-housing complex are to be condemned. These mental midgets are un-Australian!

        I think it terribly sad the HIA cannot see high land prices are killing construction employment and overall economic activity. Their constituency is builders, not land developers. Their failure to discern this ought have every chippie in the country hopping mad.

        And the coming correction will be to land prices, not construction costs.

        Don’t Buy Now!

      • Next they’ll be asking the gubbermint to ban negative comment about housing on the internet because it is creating “widespread undervaluation” of housing that should rightly cost more for people to buy!

        They’ve already got most of the MSM to ban or restrict the universally negative comments under spruiker articles, so that would seem a logical next step.

        Aside: did the blockquote above work in MSIE and Chrome? If so, well done on fixing it, DLS.

        Oh, and sorry I broke my own rule about not commenting on your articles, David. 😳

    • Housing prices at record high mutiples of income… inverence, housing at record high prices.

      Why does a good with this criteria need stiumulus?

      It’s like saying the gold price needs stimulus.

  6. I read MB all the time and love the comments. Just wanted to use this to post the following. Here is a house that sold for $610K recently but is now being advertised for rent $460p/w – I’ve run the numbers though a mortgage calculator and a rent vs buy calculator and the costs of holding are WAY above what any sane person would do – even on very high income and massively negatively gearing they are losing heaps. Help me understand how this happens? Did they actually buy it for way less than $610K, are they putting in 50% deposit? Are they hoping for massive capital appreciation? WTF?

    http://www.realestate.com.au/property-house-qld-shorncliffe-111748219?rsf=emailalert-propdetails

    http://www.realestate.com.au/property-house-qld-shorncliffe-409050299?rsf=emailalert-propdetails

  7. Long time lurker – don’t generay post but the fact the HIA and the MSM have started to even talk about a housing bubble is great news to me.

    When I first got to Australia, 2 years ago, Macrobusiness and Steve Keen, were the only to sources of info on a pottential overvaluation of housing. Now the message is getting out there that at least it is a possibility.

    I am friend with a guy in his late 20’s who has been looking for a house in Melb for the past few years. Initialy he didn’t compute a housing bubble. Even though he made the decision 2 weeks ago to buy – he was nevertheless concerned about if the property would go up or not.

    So my anecodal evidence is that while MSM and the general public may not be convinced of signifigant overvaluation of housing – nevertheless it is now at least on their radar!

  8. The banks have already said that the current deleveraging means that they cannot lend out as much in the future so the hoped for recovery does not have a funding source.

  9. The HIA has been spouting rubbush on the housing market for years – simply because it’s controlled by the land bankers, who will do whatever it takes politically to protect those artificially inflated land values.

    Way back late 2007 I gave the HIS’s them Managing Director Dr Ron Silberberg a serve …. THE NEED FOR CLARITY …

    http://www.demographia.com/p-hia.pdf

    It is well past time industry people and the public generally woke up to the antics og the HIA.

    And too … the media needs to get in and explain to the public in Australia, how the land banker interests have control of these industry organisations.

    Hugh Pavletich
    Co author – Annual Demographia International Housing Affordability Survey
    http://www.demographia.com
    http://www.PerformanceUrbanPlanning.org
    Christchurch
    New Zealand

  10. This is gold:

    “A third constraining factor is the seemingly incessant talk of a housing bubble. This particular focus on fiction unnerves potential home buyers (and renovators) and therefore reduces construction activity.”

    I’d like to introduce the HIA to a brand new concept called ‘group/social psychology’. They may have heard of it? Well it turns out that economists have just realized it is important as well, but have rebadged it as ‘behavioural economics’ to try and steal key concepts from the psychology profession without due recognition.

    Anyway, it turns out that property markets are primarily driven by those pesky, irrational, definitely not fully-informed, herd-forming individuals called ‘humans’. And guess what? They are motivated by greed and fear. Who would have guessed?

    Not only that, but they are fearful right now of a possible euro implosion, China fall-over, deteriorating economic conditions domestically and their 5 platinum credit cards which are nigh maxed out; so they last thing they are wanting is adding to their already onerous, world-beating household debt burdens on over-priced Aussie sh*t-boxes.

    HIA: “It’s the ridiculously over-priced property (land) prices, stupid.”

    Do something about it, or preferably have your developer members go bankrupt.

    • All true, Bobby, but basically, how on earth can you complain about flat/sinking market conditions when you’re at the end of an historic and unprecedented exponential boom in house prices?

      The arrogance and denial beggars belief! 😯

    • GunnamattaMEMBER

      The HIA need to start employing themselves some Real Estate Bots like 3d1k. To help convince the punterama what is good for them.

  11. “Secondly, partly driven by the above situation, and partly driven by the general almighty scare people felt from the GFC, households are firmly in deleveraging mode (a process that admittedly started prior to the GFC). In other words, households are focussing on paying down debt at an accelerated rate. This situation won’t last forever, but based on historical experience it is a process that still has some way to run.”

    This bit makes sense

    1 in 120 year household debt/GDP ratio (mortgages) will take more than a few years to pay down.

    Credit creates deposits

    No new credit = no new money = total dwelling stock competing for fixed quantity of money

    HIA problem… their members create new dwelling stock