New home lending at record lows but housing crisis bad news doesn’t stop there
The housing crisis is cementing itself as part of the Australian economic and social landscape and the latest indicators only reinforce the view that lofty ambition is not enough to resolve the issue.
Any hopes that the housing crisis will abate any time soon appear forlorn, with a slew of new data pointing to a continued shortfall of homes and even a retreat from investors who had previously been picking up their pace.
The Australian Bureau of Statistics (ABS) unveiled a suite of economic indicators this week, pointing to further pain ahead for renters, mortgage holders and builders.
The total value of new loan commitments for housing fell 4.1 per cent in December 2023, according to data released Friday (2 February).
Owner-occupier loan commitments fell 5.6 per cent, while investor loan commitments fell 1.3 per cent.
While the value of investor and owner-occupier loans fell in December, through the year growth was 20.4 per cent for investor loans and 7.4 per cent for owner-occupier loans. But the turnaround into negative territory will temper hopes that investors, in particular, were returning to the market in sufficient numbers to increase the amount of rental housing stock.
With the additional release of data on building approvals, lending indicators, inflation and building material prices, it’s evident the trajectory is veering off course, exacerbating the existing housing crisis.
Master Builders Australia CEO, Denita Wawn, said the latest data was painting a troubling picture for the nation’s housing landscape.
“The pipeline for new homes is shrinking and not showing assurances that people are able to build new homes,” Ms Wawn said.
“To hit the (Federal Government’s) 1.2 million homes target, the volume of new home lending needs to be significantly higher.
“The weak set of lending figures adds further to the case for the RBA to start reducing interest rates as soon as possible.”
2023 saw home lending for new home construction hit a record low since data started being recorded in 2003.
During December, there was a 5.6 per cent reduction in the total value of housing loans to owner-occupiers, while investor lending fell by 1.3 per cent.
Poor sentiment amongst owner occupiers resulted in the number of loans for newly built homes declining by 4.9 per cent while existing home loans suffered an 8.2 per cent reduction.
“The figures for December highlight the fact that the demand side of the new home building market is struggling at the same time as obstacles on the supply side persist,” Ms Wawn added.
While the latest inflation figure offers hope that interest rates will slow, within that headline figure was further grim news for renters, with rents rising at almost double the pace of the wider inflation rate of 4.1 per cent.
Record low for new home lending
The ABS has been collecting data on lending for new homes since 2002, and Friday’s data showed the lowest number of these loans being issued on record.
There were only 51,570 loans issued in 2023 for the construction or purchase of a new home, less than half the number of loans issued just two years earlier in 2021.
Tom Devitt, Senior Economist, Housing Industry Association, said that at a time of record population growth and acute shortages of rental accommodation, a dwindling supply of new homes threatens to worsen Australia’s housing crisis.
“The steepest RBA rate hiking cycle in a generation has compounded the elevated costs of home building, seeing potential home buyers squeezed out of the market and fewer new homes commencing construction.
“This lack of new work means the pipeline of new housing supply approaching completion is now shrinking rapidly.”
“At this rate, Australia will not commence enough housing to meet National Cabinet’s target, falling well short of the 1.2 million new homes they want to see built in the next five years.
Building costs add fuel to fire
Having stabilised during the September 2023 quarter, there were hopes that building materials costs might have fallen during the December 2023 quarter.
The 0.3 per cent increase that occurred during the last three months of 2023 is an unwelcome result and means building materials are more than a third more expensive (+33.5 per cent) than before the pandemic.
Material costs have increased by 32.5 per cent since the pandemic’s beginning, pushing up the overall cost of new housing.
Over the past year, cost pressures have been particularly acute when it comes to bricks (+13.5 per cent), paint (+11.6 per cent), sand (+11.0 per cent) and plaster products (+9.9 per cent).
Combined with continued labour supply pressures, the resumption of building material price rises is likely to frustrate efforts to expand the stock of new homes.
In the 2023 financial year, 2,349 construction companies entered administration – more than the previous record set in 2014.
Karen Dellow, Senior Audience Analyst, PropTrack, said the construction industry is facing deep-rooted challenges and the housing affordability situation was worsening.
“To address the housing shortage crisis and ensure that enough affordable properties are available to meet demand, a significant number of new homes must be built over the next five years but the biggest issue is that new builds have become less affordable and therefore less desirable for first-home buyers and those on a limited income.
“The country needs more new homes to meet current and future requirements, but given the current trajectory, it’s unlikely we’ll see 1.2 million homes built in the next five years.”