Construction finance continues to improve

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By Leith van Onselen

Yesterday’s housing finance data for June, released by the Australian Bureau of Statistics (ABS), continued to point to an ongoing recovery in the new home market, with the total number of finance commitments for construction and new dwellings increasing by a seasonally adjusted 0.6% over June, 13.3% over the year and were tracking 13% above the 5 year moving average (see below charts):

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Looking at at the state-by-state breakdown, which is presented below on a rolling annual basis since it is not seasonally adjusted, shows that the recovery in new home finance is being driven primarily by New South Wales and Western Australia, although all mainland states except for Victoria are in an uptrend (see next chart).

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Looking ahead, the signs are good for a continued improvement. Not only are mortgage rates near the lowest level on record in nominal terms but, more importantly, all states and terrritories are in the process of shifting first home buyers (FHBs) grants to newly constructed dwellings only (assuming Western Australia follows suit as expected today), which should shift FHB demand towards new construction.

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Eventually, the increased mortgage demand for newly constructed dwellings should flow into new home sales and dwelling approvals, whose pick-up to date has been fairly soft.

That said, with land prices remaining stubbornly high, and state planning systems, taxation, and infrastructure provision remaining unfavourable towards development, the overall improvement in new home construction is unlikely to be anywhere near enough to pick-up the slack left as the mining boom unwinds. Ultimately, a genuine and sustainable construction boom requires reforms in these supply-side areas, not demand-side stimulus.

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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.