New home finance confirms ongoing recovery

ScreenHunter_01 Mar. 03 22.48

By Leith van Onselen

Today’s strong housing finance data for March, released by the Australian Bureau of Statistics (ABS), contained some good news for the construction industry, with the number of finance commitments for new dwellings and construction increasing by a seasonally-adjusted 10.1% over the month and by 21.4% higher over the year, and is now tracking well above the 5-year moving average (5YMA):

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The recovery is equally 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, whereas New South Wales has shown a significant uplift since first home buyer (FHB) incentives were changed in October 2012 favouring newly constructed dwellings over pre-existing dwellings. By contrast, similar changes to the FHB Grant 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 experiencing an ongoing recovery in finance. But these figures remain out of step with far more new home sales and building approvals.

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Leith van Onselen
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  1. Good to see that the actions by the state governments to direct investment towards new housing are starting to bear fruit.

    Facilitating (or simply getting out of the way) of new housing construction is the best solution to the current level of dysfunction. The increased supply will allow a gradual and nature downward adjustment of prices across the housing market.

    However, the prices of the new builds are still far too high and remain burdened by excessive front loaded costs and excessive land prices.

    Fix those issues quickly and the housing industry will be really kicking into gear as the mining booms fades.

    Certainly the end of the mining boom is not something to be wished for but wouldn’t it be nice that when it does end we find that the cost of all types of land and housing are lower and thus allows our industries at least some chance of competing in world markets?

    • It is all very well to redirect investment more towards new housing, but as you note, as long as massive capital gain is occurring between the true cost of rural land and the point where it actually gets developed and sold for urban use, the underlying problem is still getting worse and the eventual crash will only be bigger for the additional supply of overpriced homes.

      An outright undersupply is actually less damaging, although still damaging. An outright undersupply makes you the UK. Price bubble plus oversupply makes you Ireland or Spain. Oversupply without a price bubble makes you Georgia, USA. The maths re which situation does the most economic damage, is pretty basic.