Housing construction data worsens

By Leith van Onselen

While housing finance data continues to improve, housing construction data is weakening, with the release of quarterly construction materials volumes by the Australian Bureau of Statistics on Friday showing further weakness in volumes of concrete blocks, clay bricks and roof tiles – materials typically used in housing construction (see below chart).

When added to new home sales tracking at 15-year lows:

Housing approvals still below long-run averages (albeit improving):

And falling construction employment:

The Reserve Bank of Australia’s and Treasury’s goal of having housing construction fill the void left as the mining boom unwinds needs more oomph.

Twitter: Leith van Onselen. Leith is the Chief Economist of Macro Investor, Australia’s independent investment newsletter covering trades, stocks, property and yield. Click for a free 21 day trial.

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  1. It looks as though the RBA can’t do it all alone. A loosening of LVR’s won’t help, they are already high enough, so a policy change is needed. We have some recent changes to the FHOG benefits for new builds, but they are not enough.

    If private new home buyers are not going to step up then the gov’t may have to put the NRAS on steroids to maintain some sort of supply balance before the undersupply gets out of control.

    • Loosen LVRs? I think not. Tighten and cut rates is the answer.

      Also, given banks know their assets are grossly inflated, do they want to fix the supply situation?

      You’ll see no loosening of credit in new developments until there is no other choice.

      • There’s been a subtle change in banking offerings in NZ over the last few weeks. I’d suggest that ‘somebody’ has quietly said something…but then again, maybe I’m reading more into it than I should…”BNZ has added to its Classic home loan offer by launching a 4.95% rate for one year fixed mortgages.These new rates match ANZ’s specials that require an LVR or less than 80%.” The “get up to 95%”ads…appear to have gone….

        • It’s the same here Janet – sub 5% fixed for one year rates are available, and reward for a lower LVR is the trend. I’m amazed that it hasn’t always been so.

          • TheRedEconomistMEMBER

            I concur on this also.

            Some pre-approvals have small Caveats now, that is, if you borrow great that 80% LVR, the loan would need to be on Principle & Interest, with no access to special repayments in redraw until LVR is back at 80%.

          • TheRedEconomistMEMBER

            A mate told me. One of the big 4.

            Also… did anyone catch the ABC news last night


            Alan Kohler produced an interesting graph from ANZ mentioning. Show at the moment it is no better to buy than rent financially.

            Has anyone seen this graph from ANZ before? I have tried to find report online with no luck.

          • GunnamattaMEMBER

            I did see Kohler last night – he was referring to it (for the first time in a while) being no better to rent than to buy.

      • I expect that banks are very happy to maintain the undersupply to hold up asset values until inflation and wage rises do their work. They have seen what can happen on the Gold Coast.

        So lower LVR’s and lower interest rates and maintain the undersupply for maybe 5 years and the danger will pass -then lend again.

        It almost sounds like a conspiracy. Do you think that they have a plan though. In my experience each division has their own targets to meet, and development lending will have targets although they won’t have met any for some years. A great way to keep the cost of bonuses down.

        It would be like a version of the De Beers diamond trade.

        • It almost sounds like a conspiracy. Do you think that they have a plan though.
          No conspiracy. Most voters like to be generous and invite in many immigrants and refugees. However the new people should go and live somewhere else – not in my street or suburb.

          • +1 – no conspiracy required just more of the cognitive dissonance that allows most people to whinge about housing construction next door or on the outskirts, support high levels of migration and whinge about house prices.

            At the moment the mindset that produces high prices continues full bore.

            The RBA is full of hot air about new construction all they care about is maintaining the bubble prices in the misguided belief that boomer SUVs and leopard print lingerie will keep us afloat.

            The bubble pop stop squad.

            Economic activity from building desperately needed houses is what is required.

            And we dont need ZIRP to do that.

          • Spot on Pfh. The fact that we built less homes in the year to June 2012 than in the year to June 1969 (yes, you read that right) speaks volumes about the state of housing construction in this country. Those that complain about high house prices rarely support policies that would free-up land/housing supply.

          • Leopard print lingerie Pfh?

            Revealing your true colours?

            How do you propose to stimulate building without ZIRP?

          • TP “How do you propose to stimulate building without ZIRP?”

            If I borrow $500K at 7% I pay $35K interest.

            If interest rates are 10% but I don’t want to pay more than $35K interest per year then I will only borrow $350K.

            Reduce the land component cost (which is the bit that has blow out) so that I only need to borrow $350K to buy a house and an interest rate of 10% will not be a concern.

            ZIRP is only necessary if you believe that asset devaluation should be resisted at any cost – those who think like this tend to wind up the drama – we all be rooned if boomers don’t get to reap their unearned wealth.

            As for the exchange rate – ZIRP is like using a sledge hammer to knit a tea cosy. Overkill and will not work.

          • Easy – relax zoning restrictions and if you are going to demand expensive services have the govt pick up the tab and recover over 25 years from rates rather than forcing it onto the FHBs mortgage.

            Farm land is dirt cheap.

            Red tape and artificial scarcity and front loaded costs make it expensive.

          • +1 Living outside of Oz and using one of the most useful things I have learnt, i.e. Clear Thinking in HSC English (do they still teach it?) one does suspect a closed shop conspiracy to ensure property remains central and bouyant. This is exemplified by only industry people or insiders being able to comment in the MSM, fudged clearance rates, cherry picked statistics, continued talk of population growth (which includes temp residents), features about property in MSM (issue BBC Robrt Peston complaineed about re. UK property bubble)
            etc. I also suspect that in addition to no result auctions being pulled to support clearance rates, that real estate agents encourage withdrawing of properties from the market, and focusing upon selling above average price properties to mainatin or increase media prices. One stark fact remains, in Melbourne at least, near 50K stock on market and new apartments coming online. Meanwhile today SmartCompany had a jab at SQM who have questioned RP’s data and analysis…..

        • Undersupply?

          That’s a bit old hat isn’t it? I recall the undersupply argument started by counting our homeless and those in caravan parks and was then expanded out to a whopping prediction of 200,000 houses short across Australia based upon in and outflow over the decade. Of course the shortage was based on ABS predicted population, which the latest census revised downward by 300,000.

          Since then I haven’t heard anyone dare to utter the undersupply word as it was frankly exposed as utter baloney.

          I interpret lower LVRs as banks seeing housing as increasingly risky (just like the rest of the population).

          • If there really was an oversupply prices would have crashed, so no it isn’t old hat, it’s the obvious truth that the market keeps reminding us of.

          • Peter. I really value your contributions to this site.
            I do not know if there is an undersupply or an oversupply.
            But arguing that there can’t be oversupply or the market would’ve crashed is specious.

          • dd – I don’t understand – why is it specious to look at market indicators?
            Don’t ignore them just because they are telling you a story that you would rather not hear.
            Read this thread in full and absorb the information that is trying hard to reach you.

          • There is an oversupply – of overpriced houses.

            There are near-record levels of stock on the market in several cities (I principally watch Melb and Canberra).

            But sellers are not lowering prices. Instead the developers are offering “incentives” like free hatchbacks, to avoid lowering the sticker price of the property. And private sellers are just letting their overpriced house sit on the market for months.

            That is why the market has not collapsed: it is a standoff between overambitious sellers and (justifiably) cautious buyers.

            Nonetheless, with record levels of unsold stock for sale, no argument exists for an lack of houses.

            Only for a lack of correctly priced houses.

          • C’mon PF! If Ireland and Spain have taught us anything surely it must be that even an over-supplied market can support ludicrous prices … for a while anyway.

          • McPaddy – What Ireland and Spain taught us was that when you overbuild the market crashes like a stone in double quick time. Empty houses don’t pay their way even if interest rates plunge. No one can afford to hold a losing investment for very long. Clearly the demand was artificial. They built hoping to sell on spec without questioning the need for the house as a place of shelter.

            It’s more than just a bit difficult to quantify an over build or an under build, demand is quite elastic, but in areas where we knew there was an oversupply like the Gold Coast we did see genuine USA type falls. That happened quite quickly and now some of those areas are slowly recovering. However we didn’t see that in close to the CBD of major cities like Sydney.

            So why didn’t we see a crash? If you don’t like my theory, tell me what your theory is to plausibly explain why house prices in those areas didn’t crash due to an oversupply.
            We have the facts and they have been quite constant for four years, so what is the narrative that fits those facts?

            Happy to listen to any theory.

          • What about….the stock market collapses….property has to be sold to meet debt claim ( we’ve all seen this before 1988, 2001, 2009) but this time, there’s no pull back …but there was in 1990, 2003 and, well we’re still waiting…but what if there isn’t one…. then what….

          • Sorry, I’m probably a bit late with this reply, but I would actually question the lesson that you say Ireland and Spain taught us. As it says in Wikipedia:
            ” International Monetary Fund (IMF) report in 2000 contended that Irish property prices were almost certainly heading for a collapse in the medium term, since “no industrial country in the last 20 years had experienced price increases on the scale of Ireland without suffering a subsequent fall”.[5]

            House prices went on to more than double between 2000 and 2006.”

            So are you saying that the overbuild only happened in Ireland as of 2005? If so, what’s your source please.

          • PF, you said: “What Ireland and Spain taught us was that when you overbuild the market crashes like a stone in double quick time.”

            Those links that you posted show the following:
            – there was a massive overbuild in Ireland
            – there was simultaneously a massive run up in prices in Ireland (even worse than in Australia on just about any metric)

            I fail to see how the links don’t directly contradict your statement. Yes, the crash came in Ireland, but it took YEARS to happen, well after the bubble had been identified by dispassionate observers.

    • gibber_blotMEMBER

      They should do no such thing. We don’t need any more houses built on the outskirts of Australia’s cities. Not for a long while.

      • “We don’t need any more houses built on the outskirts of Australia’s cities”

        There are plenty of empty, cheaply built estate dwellings north, south and west of Brissy. No shortage here! But there is a shortage of infrastructure, no rail, no bus routes no work, nothing except a bloody long line of traffic, every morning and night on every road leading to the city!

        • Yes. On occasion i have reason to drive to the outer suburbs in Melb on a work day and the horror of the morning traffic disaster is truly mind-melting.

          I’d have thought this is the stuff revolutions are made off – amazes me how people just suck this sh8t up.

    • It looks as though the RBA can’t do it all alone

      Yes, we (RBA) can.

      Unlike the continuing Bernanke put – buying $40 billion of mortgages every month – RBA’s Stevens put should go beyond and buy up all the building companies that are going bust every week (including 100 year old ones) k and set up a giant subsidiary called RBC – Reserve Building Company.

      It is only natural for RBA to do this when the mega banks are themselves nothing more than glorified building societies with 60% of their loan book in mega mortgages.

      Above all, RBA has great experience at running subsidiaries (Securency & NPA come to mind) and making a profit.

      Only then will we be able to solve the “undersupply” myth.

      PS: Of course, I am being sarcastic 🙂

      • Another gem Mav. What I find perplexing is how countries such as the USA and Europe are coming out with some great policies to re-invigorate their productive economy. For those interested I suggest they read Obama’s election 100 point plan as an example of policy innovation. These countries are actually learning from past mistakes and taking real measures to create a brighter future and that does not include re-inflating speculative housing markets.

        Australia is simply lost, our policy is redundant and based on straw men in high places feeding from their own spin. The balance sheet tells the real story politically and economically as you have graciously mentioned in your post.

        Houses and holes indeed, great big toxic holes and toxic houses built from Chinese materials.

        It would be great to state something positive, but what can be said. Great people with great ideas leave or get their mouth sewn shut. We are already owned. Bring on 2013.

      • Mav, with some tweaking that idea actually has some merit.

        The RBA could print off some currency and buy up those building companies and then use the weight of the Federal Government to acquire large chunks of land within the metropolitan cities.

        It could then develop (provide basic services)the vacant blocks and release to the market at low cost with the development costs recovered from an annual ‘services fee’ on the blocks repayable over 25 years.

        A nice steady earning investment over 25 years, the money spent on something more useful than the average CWth Govt security and a huge volume of inexpensive serviced land released to the market.

        Building construction and associated industries would take off and the ‘economic’ dead weight of overpriced land and housing will be removed from the economy.

        Sure there will be a bunch of boomers weeping at the loss of wealth which they never earned in the first place but it is time to get our priorities right.

        That was an excellent idea!!

        But your point about the RBA’s ability at running subsidiaries are well made. 🙂

  2. RBA must be frustrated: Debt and house prices are going up while construction is falling – the exactly opposite of what they want.

    And … they are all surprised, although for anyone with a bit of understanding how real world is functioning, that is not a surprise at all.

    Australians buy houses almost exclusively for a speculation (even when they buy their first home they mostly think about capital gain in 5 or 10 years) and new low quality, extremely overpriced are not good for that purpose.

    • Bang on Rav. The whole concept of a private residential dwelling as the path to riches is endemic and entrenched.

      This mindset means that housing at all levels is about financial speculation.

      Lowering rates further might just end up giving us a jobless price boom – hilarious the politico part of the politico housing complex is going to find that one singes the fingers.

  3. If housing construction doesn’t get going then there will probably be some “nation building” projects announced eg: new/upgraded airports, dams, roads etc to keep construction going.

  4. Why not make interest deductible for the first 3 years for first home buyers on new builds. Then transfer all the incentives to non first home buyers. Let investors take get the stamp duty and cash bonus. Couple that with NRAS in some areas.

    You must have a principle and interest loan to claim the benefit.

    That would light shit up 😀

  5. Oversupply or undersupply?

    From LVO’s new dwelling data above

    Supply – 150,000 new dwelling approvals per year

    Demand – 80,000 new dwelling sales per year

    Am I missing something?

    • The HIA data is based on a sample survey of production builders. It does not capture every new home sale in the country. Also, the dwelling approvals data captures private home construction and demolitions – e.g. if I knock-down my home and re-build a new one in its place.

      The two series are not directly comparable, which is why I focus more on the trend of each.

          • Thanks Leith.

            I find it astounding that the the industry the RBA deems to be the one most likely to deliver short term growth for this country does not measure the actual number of units it produces and sells.

            If you don’t measure it, you can’t manage it.

          • house sales are falling faster than house approvals, which suggests that a new home glut is building

            If that is the case, Leith, it surely doesn’t matter how much “oomph” is put into the construction sector – the demand simply isn’t there.

          • Yes, but putting “oomph” in – presumably by further lowering interest rates – doesn’t lower prices. (I guess strictly speaking it lowers the price of money, but it sure doesn’t lower housing prices. Potential buyers have to believe that interest rates will stay at record lows if they are to be persuaded to buy, and I don’t think they are.)

      • I know for a fact that its based on exchanges. So they collect sales data by asking their members about recent exchanges. Not all developers report their sales throughout the selling process so I am sure there are a lot of missed sales.

        But in saying that they must also collect their dwelling commencements data in the same fashion they would also miss out on newly constructed dwellings.

  6. That’s a bit old hat isn’t it? I recall the undersupply argument started by counting our homeless and those in caravan parks and was then expanded out to a whopping prediction of 200,000 houses short across Australia based upon in and outflow over the decade. Of course the shortage was based on ABS predicted population, which the latest census revised downward by 300,000.
    Since then I haven’t heard anyone dare to utter the undersupply word as it was frankly exposed as utter baloney.

    Classic shortage-denier nonsense. There are many intelligent people who understand the shortage/undersupply and don’t rely on silly census numbers or on homeless/caravan dwellers.
    High rent:income ratios indicate a shortage of decent housing a decent commute from workplaces. There is one shortage. There are plenty more.