Change in first-home buyer grants a factor in Victorian dwelling approvals slump: Westpac

A 24% slump in dwelling approvals and a 12% fall in detached housing approvals was recorded in Victoria in June with suggestions that changes to the first home buyer grant and stamp duty concessions may have resulted in some new housing developments being pushed back to await larger handouts.

The $7,000 first-home owner grant available for both new and existing homes was scrapped on June 30 and replaced with the $10,000 first-home owner grant only available for those buying or building a new home including those bought off-the plan. Stamp duty concessions for properties valued under $600,000 increased from 30% to 40% available to new and established homes.

The graph below shows how first-home owner applications for new homes has fallen as buyers awaited the bigger incentivew with the corresponding drop in approval numbers:

building_approvals_westpac_chart

The slump in building approvals highlights how changes to first-home buyer grants can artificially shift the dynamics of a housing market, though it should be noted that in trend terms the Victorian unit market has been declining for 11 straight months - indicating a longer pattern of correction - while approvals for private sector houses rose 0.9% in June in trend terms and have risen for five months.

Westpac senior economist Matthew Hassan notes that excluding the Victorian figures, total dwelling approvals would have risen 0.7% with detached housing approvals up 3.4%.

“Some of this may be due to state government policy changes - in particular, some projects may have been delayed to take advantage of the first home buyer bonus for those buying newly built dwellings and a 10% increase in the stamp duty concession offered to first home buyers, both of which kicked in from July 1,” says Hassan.

There were more solid rises in dwelling approvals in NSW (+6.7%) and Qld (+7%) where a $15,000 first-home buyer incentives have been in place for some time.

Apart from Victoria, the other notable weakness in the data was the 12.2% decline in unit approvals over June.

While traditionally a more volatile sector, dependent on the timing of approvals for larger inner city developments, Hassan points out that when drilling down into the data, the decline was concentrated in medium to low rise rather than high rise - suggesting the fall does is not simply due to a 'lumpy' pipeline of large projects.

HIA senior economist, Shane Garrett, notes both trends in the building industry body’s downbeat response to the June figures.

“We continue to see weakness in segments of the market like multi-units as well as in regions like Victoria and Tasmania. As long as this weakness persists, there is no prospect of a broad-based recovery occurring,” warned Shane Garrett.

Commonwealth Bank economist Michael Workman says that despite the fall in June, the monthly average for approvals since the beginning of the year is still 13,300 approves, which annualises to 160,000 approvals – the bank’s target for 2013 approvals and construction.

Workman also notes that Victorian approvals are falling from previous highs, but more broadly says the current upswing in approvals, and construction, looks set to be “relatively mild compared to previous ones which came with considerably more stimulus to FHBs than the current cycle”.

But even this mild upswing should have some wider economic benefits.

“If maintained, it will be about a 10% increase in national approvals over 2013…which would add about 0.5 percentage points directly to GDP growth through higher construction.

“The big box retailers would then gain from selling more white goods, entertainment items, furniture, hardware and gardening gear,” he says.

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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