A FHB bounce for new housing?

By Leith van Onselen

Over the weekend, the Australian Financial Review (AFR) ran an article suggesting that a recovery in first-home buyer (FHB) new home sales is afoot following the changes to FHB grants in New South Wales and Queensland, which in October 2012 ended the FHB grant on pre-existing dwellings in return for more generous subsidies for buyers of newly constructed dwellings. From the AFR:

The new round of first home owner incentives, introduced by state governments in the past six months and targeted at new construction, is starting to have an impact…

A NSW Treasury spokeswoman said the number of new homes being built or bought by first home buyers since the grant was introduced in October was four times greater than the same period last year.

In Queensland, developer QM Properties reported its strongest month in sales in 3½ years last October, with about 55 per cent made to first home buyers…

“Over all of our developments in south-east Queensland, sales have doubled as a direct result of the new grant,” QM properties sales manager Damien Ross said.

Stockland also noted a moderate improvement in sales in NSW and Queensland because of the grants.

The chief executive of AVJennings, Peter Summers, said the new incentives looked to be having some positive impact…

BIS Shrapnel associate director Kim Hawtrey said the increased first home buying reported by NSW Treasury reflected a clear positive shift by buyers towards new dwellings because of the grants.

“It will have a positive effect on construction of new homes, which will help to support building levels, especially in NSW where it has been performing badly,” he said.

The executive director of the Property Council in Queensland, Kathy MacDermott, said the new incentive in Queensland was providing a much-needed boost to construction and residential sectors under pressure because of lower household consumption and investment in dwellings and slowing employment growth.

While the changes to FHB grants should logically have a positive impact on new home sales in New South Wales and Queensland, it is difficult to see much improvement in the latest Housing Industry Association (HIA) new home sales report which, as at November 2012, showed annual new home sales falling to their lowest level in the series’ 16-year history (see next chart).

In fact, new detached house sales fell to near 16-year lows in all mainland states except for Western Australia, which is experiencing a mild resurgence (see next chart).

The next series of charts plot new detached house sales against house approvals in each of the mainland states and nationally. The difference in the slope of the two series provides an indication of whether a new house glut might be developing in Australia’s outer suburbs.

First, here’s the picture at the national (mainland state) level:

As you can see, new house sales have fallen away at a much faster rate than house approvals, suggesting that a glut may have developed nationally in Australia’s new housing estates.

Next is New South Wales, where house sales have fallen away as approvals have flat-lined:

The situation looks far more precarious in Victoria, where new house sales have plummeted at a much faster rate than house approvals:

The situation appears similarly precarious in Queensland, where house approvals have risen since September 2011, whereas new house sales have fallen:

Western Australia, by contrast, is bucking the trend, with new house sales rising at a much faster rate than approvals since late-2011, suggesting an undersupply of new houses for sale might have developed (see next chart).

Finally, in South Australia, new house sales and house approvals have moved more or less in-line (see next chart).

Based on the data from the HIA, it appears far too early to suggest that a FHB-led recovery is underway in new home sales, except in Western Australia. Moreover, the new house and land markets in Victoria and Queensland appear to be experiencing clear oversupply, as evident by new house sales falling at a much faster rate than new house approvals.

 

Comments

  1. reusachtigeMEMBER

    It’s interesting to note that although Vic and Qld, and SA to some extent, seem to have just fallen off a cliff, NSW fell off it’s cliff at the start of the naughties and just bobbed along the bottom for the last 12 years but does seem to have found a new cliff to drop from, albeit from such a low height already.

    What does this mean? That a state (ie, NSW) can adjust and adapt to low detached housing construction, or that tastes just change? 12 years of this in NSW and what’s the outcome really? It seems to have been business as usual really.

  2. If the objective of recent changes to the FHOG in a number of states, has been to drive construction, then they have it wrong. It will drive construction and demand for multi-dwelling apartments and communal style dwellings, but I doubt that they will achieve the results they want for detached housing. FHB’s don’t make the best candidates for construction, they lack the financial resources that upgraders have. I think tht it is morally wrong to encourage inexperienced home buyers into a higher risk housing entry portal via construction.

    They would be better off re-instating the FHOG on existing purchases, and then offering an incentive for all constructions whether that be for an FTB or not.

    Probably not a popular option here though.

    • Fabian AlderseyMEMBER

      Why re-instate the FHOG on existing dwellings? Why not just provide incentives for construction?

      • Well the FHOG in a number of states is only available for FTB’s building a house. Based on experience I have found that FTB’s have smaller deposits (plenty of evidence of that) and people with limited resources can’t cope with shortfalls in valuations, even if they are only small shortfalls. they also don’t have the resources to cope with cost over runs, nor do the have the experience to say “no” to themselves when faced with every potential cost variation. It all seems minor at the time, but at the end of the build when a number of cost variations get tallied up they reach an “oh crap moment”

        Therefore I see higher risk for FTB isn construction, and I’ve seen them left with a block of ground they can’t afford to build on, so they have to make repayments on the land loan as well as pay rent.

        If the object is to drive construction, then why not allow FTB’s to buy existing and still get the FHOG, and then encourage the upgraders to build?

        It certainly worked like a charm in 2009, although I doubt that they want that level of stimulus this time.

        • Why not aim for a self sustainable market where FHBs (specifically) aren’t targeted with handouts and rather have to save their deposit?

          I don’t think a temporary grant for all new construction is a bad idea, but not if it means returning the FHOG for existing dwellings.

          Providing FHBs with a cash grant and allowing them to leverage it 10x in order to boost their purchasing power is dangerous with any purchase, especially in an environment of historically low interest rates.

          • BB – from a purely business aspect there is a lot of incentive for state governments to offer incentives.
            If we took the case of a new apartment in Melbourne being bought for $500K then the state government receives $21,970 in stamp duty, the allocated share of the GST of $45,454 (most of it) and the local council receives some hefty fees on the development.

            It also keeps construction workers employed, and building material suppliers and ancillory suppliers trading profitably.

            It injects a lot of cash into the state coffers and into the local economy.

            The government carries no stock, it builds nothing, but it takes a healthy cut on every transaction – almost a perfect business.

            Without looking at the moral issues, why wouldn’t they offer some incentives for a small section of buyers to keep sales rolling?

            If you look at the bigger picture, what populace would vote back a state government that ran high deficits regardless of the reasons for accumulating the deficits.

          • “why wouldn’t they offer some incentives for a small section of buyers to keep sales rolling?”

            Because it results in market distortions which cause problems over the long term, either pulling forward demand (a problem once the temporary incentive is removed) or it breeds reliance on the incentive, pushing prices higher & making them less affordable.

      • TheRedEconomistMEMBER

        PF,

        We are continously bombarded with lack of supply reasons why houses are so expensive in Sydney

        The whole idea of pushing grants to New Builds is to increase this apparent lack of supply.

        With no grants or exemptions on existing property, new construction is more attractive and also generates more employment.

        Re-instating the FHOG on existing purchases would just assist vendors by jacking up prices (plus there pockets) and costing governments and taxpayer more.

        • My comment was written on the basis of “If the objective is to drive construction growth” and I think in that context I’m likely to be correct.

          I understand that it is counter to the objective of those who want a crash or moderation in house prices, but that wasn’t the question I was answering and nor does it seem to be the theme of this particular blog post, perhaps I’m wrong.

          • TheRedEconomistMEMBER

            “If the object is to drive construction, then why not allow FTB’s to buy existing and still get the FHOG, and then encourage the upgraders to build?”

            Generally an upgrader would be wanting to live in a better location, closer to employment and better schools. Usually these places are built out.

            An upgrader is not going to want to build on the city outskirts where most green belts are located.

          • That’s a fair point – work calls, let me consider that, but quickly it could be a matter of incentives, or is higher density housing close to the CBD a bad thing? It might also be the solution, but thanks for the exchange.

          • Peter,
            If your theory were correct, you would expect the falls in Vic new house sales (where the FHB grant on pre-existing properties remains) to be less severe than the other states, since the 2012 changes.

            The falls in Vic new homes sales have been the worst of all the states.

          • I don’t think that is a fair comparison Pat. In fact Victoria did run with both a FHOG for existing and a boost for construction and that did stimulate construction in Victoria. Now that they have largely taken that away sales in Victoria have fallen, although it could be also argued that the process of bringing forward demand had run it’s course.

            Victoria is a very expensive state to buy a house in. For a home above $440K the duty is $18,370 plus a whopping 6% on every dollar above $440K. I think that Mr Capone charged a smaller protection dee than that.

            People in Victoria don’t buy houses because of the FHOG, they buy houses despite the FHOG.

          • Peter,
            Your ability to obfuscate and confuse a relatively simple issue is truly of olympic standard.
            So now we are talking about Stamp Duty are we?
            In case you didn’t notice Vic just reduced that as well.
            Vic still has the biggest falls in new house sales.

      • I can see how you draw that superficial conclusion, but if you really tried, you just might be able to come up with a constructive argument that shows me why I am wrong. It’s what I want and what I come here for, but bluster doesn’t do it for me, so what is your argument against what I proposed. Is there a better way, or will it not work at all, and if not why?

        Have you an alternative thought? I’d like to hear it.

          • Pat – Not enough data to give reliable results. I get a fair bit of info talking to people who see statewide and national data within their own organisations, but it’s all anecdotal – they would never put anything in writing and if they did I wouldn’t publish it.

            I haven’t had any converstaions since before Xmas and then it was just bouncing along, nothing to write home about, although I was busy.

        • Let it collapse.

          Let the incentives system die. Yes, prices will collapse. They’re going to anyway eventually.

          “If something cannot go on forever, it will stop.”

          We might as well sort through this mess before it gets too hard.

        • Drive down any street in Sydney, I can imagine it being the same in Melbourne and you will find properties that haven’t been touched in 30+ years that have 1 or 2 people living in it. These properties are littered throughout the inner city and if fixed up and re development would drive a massive construction boom in established area’s.

          Introduce a land tax and make it expensive for people not utilising the land and there will be a flood of sales of old properties ready to be purchased and redeveloped causing the construction boom our government so desperately wants.

    • Interesting comment/point – and not something i’d ever actually considered.

      I reckon a better conclusion that interference in this market is pretty unhelpful full-stop – we’d be better off just making it more uncomfortable for speculator investors.

      • Well what about doing away with the FHOG AND stamp duty, and then making an incentive available for all construction – will that work for you?

        The issue then is state income. what about that?

        • The problem with any incentives (in any industry) is that they all immediately just flow into the price and are wasted. The market wants new houses and innovative solutions to improve existing stock, i’m not sure incentives are needed.

          The answer really is taking the price pressure of land so the money can go to the building stock. I’d say belt the investor/speculators and Phil would say free up the land, and the real answer is most likely a bit of both.

    • Are you suggesting that if eg Australand build 100 new houses and sell them to FHBs the FHB won’t be eligible for the grant, but that if the FHB bought a block of land and then contracted a builder to put a home on it then then they will be eligible? Or if they bought a new house and land package they are eligible but if they buy the same builder’s new stock they are not eligible?

  3. I think its disgusting that we as a society can expect a grant to be given out to buy a material item.
    Is`nt it obvious that the price is too high, and any kind of grant dignifies the high price, again in line with ‘expectations’.
    Why not just eliminate stamp duty on new homes for first home buyers?
    I live in SA where new home construction is in dire straits. I was speaking to a friend who works for Bianco building on the weekend, he was commenting that they are only laying about 1/3rd of the slabs that they would consider to be normal.

    The other thing – people don`t see the value in a < 400m2 block anymore ( if they ever did ). Especially out in 'the burbs'

    • “”I think its disgusting that we as a society can expect a grant to be given out to buy a material item.””
      .
      .
      Well said!
      .
      .
      This ponzi bubble needs to be popped, not have more money thrown at it.

  4. GunnamattaMEMBER

    Just for some perspective

    http://www.filmsforaction.org/watch/real_estate_4_ransom/

    And a general comparison on what circa 450K USD will buy you around the world (or double that in Melbourne)

    UK – http://www.rightmove.co.uk/property-for-sale/property-31750462.html

    US – http://www.businessinsider.com/houses-for-450000-2013-1

    Spain – http://www.propertyinspain.com/en/property/id/557706

    Italy – http://www.homesinitaly.co.uk/smx/search/property/2876/

    Or the inner burbs of Melbourne for double the amount – http://www.realestate.com.au/property-house-vic-abbotsford-112368071

    There is something seriously wrong here, and a lot of cretins profiting from having punters believe it is quite normal…..

    • Didn’t you hear? Australia is the second best country in the world to live/be born in… surely a massive premium should be expected for such a privilege? Perhaps a comparison to prices in Switzerland would be more appropriate (ranked #1)?

        • Funny you should say that…

          I worked in Zurich for 12 months in 1998 – 1999. I thought at the time it sure was one hell of an expensive place making anything in Australia by comparison relatively cheap.

          March on another 14 years or so and you now find many places in Australia are more expensive to live (Canberra for example).

          At least in Zurich you had the spectacular outdoors all year round without even the slightest hint of a bushfire.

          On a value for money basis Australia has slipped alarmingly on nearly all levels in such a short space of time.

          • GunnamattaMEMBER

            You arent wrong there. First time I went to Zurich I thought it eye glazingly expensive (Geneva too). Last time I was there was just over a year ago. Currently I am in Geelong with absolutely no explicable and sustainable reason why everything here should be far more expensive than there.

        • But in Zurich (yes home of plenty of stashed money and I know from experience a seriously expensive – almost Australian level – place to hang out )

          I moved from Sydney to Zurich in 2007 and asked for a 20% pay increase to cover the cost of living increase. In hindsight that was probably about right.

          When I came back to visit in 2010 (was living in the US by then, which exacerbated the effect) I was amazed at how even Brisbane was now starting to get up around Zurich prices.

          With that said, there are still a few things that really are eye-wateringly expensive in Switzerland – beef, for example.

    • You’re not really comparing apples with apples there. Melbourne is a city, whereas malaga and bournemouth are holiday destinations, and tuscany is a rural area. Can’t speak for the US ones.

      Don’t get me wrong, I think house prices are stupidly expensive here, but that’s not apparent from these comparisons.

  5. Didn’t the RBA warn lenders against doing just this?

    SGE Credit Union is offering borrowers 100 per cent of a property’s purchase price – the first time in three years lenders have offered loans with no deposit.

    Seventy per cent of home loans now offer 95 per cent or more of the purchase price, data from independent financial comparison website RateCity shows.

    http://www.news.com.au/realestate/buying/lenders-now-offer-the-lot/story-fndban6l-1226553284168

    • reusachtigeMEMBER

      Well there is no law against it. Just because some agency says “please don’t” it means nothing.

      • Thanks your bigness,

        I was posting it here to make the observation that lending standards seem to be falling as the RBA has anticipated and explicitly warned lenders from doing so.

        • reusachtigeMEMBER

          I know, I did not mean to offend, but I was making the point that such declarations from the authorities are totally pss-weak in reality. Unless there’s proper regulation it means absolutely nothing.

  6. Thanks for the comprehensive presentation, Leith.
    Lots to absorb.
    A few questions on the data.
    1.What is your explanantion on the “late 2012” spike (in sales and approvals)common to all states?
    2.Why does the spike not appear in the national data?
    3.Using the spike as a reference point it appears growth in new house sales precede growth in new house building approvals. In the context of the new house construction process and the HIA data collection methodology, how does this follow?

  7. I finally got around to watching realestate4ransom (http://realestate4ransom.com/) last night. Any comment thread have a good set of opinions of the land tax idea? I wonder if the big reform was Land Tax instead of GST if we would be in the same mess or a different one now?

  8. The ad running on this site right now is for Peet’s Mega House and Land Sale! Save up to $30k! Looking into the fine print, I see this:

    “7. Each Purchaser who complies with the following conditions will receive a rebate of
    (‘Rebate’) from the purchase price of an Eligible Lot…”

    They’ve forgotten (?) to even include the rebate amount in the fine print.

  9. What happens to demand for existing homes for FHBs as they discover they can get a grant for a newly constructed unit or house but not for an existing renovator’s dream?

    What then happens to prices of existing homes/units?

    And what happens to those who got the grant when in 3 or 4 years time if such a grant is still in place when they go to sell their now existing home with no grant eligiblility for FHBs?