Housing industry warns interest rate cuts may not boost sector until late 2012

Despite two consecutive interest rate cuts the construction industry might not begin to recover until late next year, experts have warned, after official figures showed housing starts fell in the September quarter.

The warning comes as the construction industry continues to suffer under their highest number of insolvencies in any industry. Yesterday, South Australian builder Candetti Constructions was also confirmed to have been placed in administration.

Housing Industry Association economist Andrew Harvey says yesterday's data showing a 12.1% annual decline in the number of new houses built in the September quarter should be taken in context with the most recent rate cuts – but also says it's a dire situation.

"We are coming off a low base. And in my personal view, those rate cuts were fundamental in turning around confidence."

"But the nervousness around the situation in Europe has really pervaded through the new home market and it might take more than the couple of cuts we've already had to pick up the starts."

In fact, Harvey says, any recovery may be a long way off, closer to the end of next year than in the next few months. With economists expecting another rate cut in February, Harvey says it'll take some time for the benefits to seep through the rest of the market.

"If you look at the national accounts data, it's showing there's not that much to the Australian economy," he says.

"It's going to take some time for these cuts to feed through. We're looking until around mid-2012 or even later, towards the end of next year, before things start picking up."

The situation comes as the industry continues to suffer the highest insolvency appointments out of any other sector. Over the past year several smaller businesses have fallen over, and some larger firms have failed as well, with Candetti in South Australia only the latest casualty.

"The situation in construction is starting to feed into society in general," Harvey says. "You get the feeling that you don't want to see this continue for another eight months."

Harvey says the government needs to stop focusing on mining as the saviour of the economy, and recommends action to be taken for home owners. Despite rate cuts already announced, and possibly more on the way, he says it's time for some external assistance to get the industry moving.

"Home building is essential to having the economy growing again."

"With all of the uncertainty swirling around at the moment, it's probably at the stage where the federal government has to do something."

This article originally appeared on SmartCompany.