First-home buyer $15,000 grant to spark recovery in NSW new home building: BIS Shrapnel

BIS Shrapnel has revised up its expectations for new home building in NSW due to increased demand for new homes from first-home buyers following the introduction of the $15,000 state government handout on October 1, which only applies to buyers who buy or build a new home.

BIS Shrapnel is now forecasting around 40,000 homes to be built annually by 2015, up from the current average of around 30,000 homes year.

This jump would also lift the NSW residential building industry out of recession, according to the economic research firm.

August HIA figures revealed that the number of seasonally adjusted new detached house sales fell by 7% in NSW, while nationally, new home sales are at a 15-year low, averaging around 3,000 sales per month compared with more than 8,500 per month three years ago.

Since October 1, the state grant has been lifted from $7,000 to $15,000 for new homes valued up to $650,000, while a maximum stamp duty exemption of $20,240 is also available for homes worth up to $550,000.

Building commencements last peaked in September 2010 with 32,950 homes built over the prior 12 months, but has since dropped back 6% to 29,250 over 2011-12.

BIS Shrapnel associate director Kim Hawtrey says the expectations of a lift in residential building activity is based on what “what happened last time buyers of new homes were given special treatment [in 2008]”.

Then, the government lifted the $7,000 first-home owner grant to $21,000 for new homes purchased between October 2008 and January 2010.

''Before the 2008 boost, around 10% to 15% of Australia's first-home owners bought new homes or units,'' Hawtrey told Fairfax.

This jumped to 39% of all homes purchased by first-home buyers following the tripling of the grant.

According to Hawtrey, if the proportion of first-home buyers buying new homes currently jumps from 17% to 39%, as happened in 2008, this would mean an extra 8,200 first-home buyers would buy new homes. This is based on NSW Office of State Revenue figures, which show 37,500 NSW residents took out first-home owner grants in 2011-12.

In its September 2012 residential building report BIS Shrapnel forecasts lower interest rates and a recent fall in house prices has improved affordability to levels last seen in 2001 (excepting at the height of the GFC).

Alongside improved affordability, BIS Shrapnel expects a general strengthening of the NSW economy and improving consumer confidence.

In addition, it says a focus by the NSW government to improve planning processes and a desire to release new greenfield land packages will ease pressures on the supply side.

Prior to this expected recovery, BIS Shrapnel notes that residential building in NSW has been “persistently subdued over much of the last decade, averaging only 30,000 commencements annually since 2006”.

“Over the same period Victoria averaged 46,000 commencements, whilst even Queensland managed 34,000.

“Although residential building slumped over this period, population growth remained strong and consequently a significant stock deficiency has emerged, centred primarily in Sydney,”

This deficiency, says BIS Shrapnel, has “created significant pressure in residential property markets, driving price and rental growth and ensuring Sydney remains the least affordable capital city in Australia.

“Affordability has been a significant contributor to the lack of new dwellings built in NSW, alongside a complex planning framework and lack of suitable land releases.”