Off-the-plan settlement lags play a part in understanding the housing turnover maze: RBA

The rate of housing market turnover, or transactions, is on an “unusual decline” with a sharp rise in off-the-plan sales of apartments — which are difficult to measure in a timely manner — likely to be a factor, according to the central bank.

Other potential reasons could be lower rates of home ownership, particularly for younger households, and migration trends. 

A fall in housing market transactions directly affects the economy as it hurts tax revenue - which made up about 40 per cent of total state tax revenue in 2014/15, besides impacting the creation of more jobs and related occupations such as real estate agents, lawyers and the finance industry, the RBA notes.

The RBA’s latest bulletin says the decline in the national housing turnover rate in recent years has come despite “the strength in a number of housing market indicators such as national housing price growth, which has historically been positively correlated with the turnover rate”. 

It says part of the recent weakness could from measurement issues arising from the increased share of apartments in new housing construction. 

Approvals for higher density housing have increased sharply since 2009 and now account for around half of all approvals. 

As a majority of new apartments are purchased off-the-plan, well before construction has commenced, they have settlement lags of around two or three years. With limited data about these sales until settlement, the RBA bulletin suggests that reported housing turnover is likely to be understated.

More approvals could only increase this understatement, according to the central bank.

Apartment transactions rose sharply through the second half of 2014 and early 2015, before declining to around 2 per cent of the housing stock. 

“The aggregate housing turnover rate would have also increased through late 2014 and early 2015 under these assumptions, before declining to be below its decade average rate,” says the bulletin.