Housing industry asks for government intervention as housing starts slide

The Housing Industry Association and the Master Builders Association have demanded government action to arrest the slide in new dwelling starts following a third decline in four quarters. 

Dwelling commencements are down 7% for the 2010-11 year after a 4.7% fall in the June quarter to 37,820 following the release of ABS data. 

Detached house commencements fell by 2.2% to 23,106 while commencements of “other dwellings” dropped by 8.8% to 14,406. 

The number of seasonally adjusted dwelling commencements fell in five of eight states and territories in the June 2011 quarter.

Dwelling commencements fell by 20.1% in NSW, 16.3% in Queensland, 1.3% in Western Australia, 14.3% in Tasmania, and 69.4% in the Northern Territory.

Dwelling commencements increased in Victoria (6.8%), South Australia (4.5%), and the Australian Capital Territory (30%).

HIA chief economist Harley Dale says the renewed weakness in dwelling commencements, which began in mid-2010, “reflects a lack of policy reform progress in reducing the high cost base to new housing and a deterioration in household confidence and demand”.

Dale expects commencements to fall considerably further in 2011-12. 

Dale says dwelling commencements are running at an annualised level of just over 151,000 in the June 2011 quarter. 

“The urgent need for stimulus to kick-start new home building is crystal clear as Australia moves further away from the underlying demographic demand for around 175,000 dwellings per annum.”

Peter Jones, chief economist at the MBA, says residential building has failed to kick-on after recovering ground lost in the GFC and is in danger of weakening further unless policy changes.

“Housing faces a potential crisis-in-the-making given past levels of underbuilding, and for a wider economy desperate for a traditional driver to spark activity in parts of Australia caught in the slow lane of the two speed economy.

“At the very least, a long period of interest rate stability from the Reserve Bank is vital to ensure an upswing in the interest-rate-sensitive residential building sector becomes entrenched.”

“Governments at all levels need to address inefficient developer charges and other policies that add an unfair cost premium to new dwellings.”

CBA economist James McIntyre noted the continued weak demand for private sector housing starts, a downward trend that has now run to six consecutive quarters. 

“The ‘fiscal fade’ effect has been significant in this segment of the housing construction sector, as the effects of the removal of the boost to first home buyer grants and higher interest rates work through,” he says. 

“We expect some near term improvement in private housing commencements, on account of improved housing sentiment and the extended pause in the rate hike cycle. 

“However the recent pattern of approvals has been weak, and could be exacerbated by the recent financial market turmoil.  This suggests downside risk to our outlook. 

Whilst we expect a pickup in dwelling commencements in late 2011, we expect any recovery to be short lived.  Our call for a resumption of the rate hike cycle in 2012 will weigh on the sector. 

The bank expects the next rate hike to occur in February 2012.

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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