From February through April 2023, new home and construction lending was nearly a third lower than the corresponding period in 2022, according to the Housing Industry Association.
The decline was most pronounced in the ACT, down 67.5%; and NSW, down 34.9%.
The nationwide construction nadir is the lowest point since September 2008 during the global financial crisis.
“There are very long lags in this cycle and the full impact of the RBA’s rate increases are still to fully hit the housing market, let alone the broader economy," HIA senior economist Tom Devitt said.
“These low lending numbers reflect a lack of new work entering the pipeline at the same time that population growth is surging."
This adds to construction data released Tuesday, which shows dwelling approvals fell to an 11-year low, and down a further 8.1% on the month.
Data on construction work done also shows a 1.9% slump for detached houses over the March 2023 quarter.
In a senate committee hearing on Tuesday, RBA Governor Dr Philip Lowe said the population is due to increase by 2% this year, yet supply will not increase by the same proportion.
He said this would have a flow-on effect to renters, which will drive up the average household size and make more households share.
“As rents go up, people decide not to move out of home, or you don’t have that home office, you get a flatmate,” Dr Lowe said.
“Higher prices do lead people to economise on housing... kids don’t move out of home because the rent is too expensive, so you decide to get a flatmate or a housemate because that’s the price mechanism at work.”
While not the remit of the RBA, and one for states and the federal government, Dr Lowe said the solution is "supply supply supply".
Unstoppable force vs immovable object
Home lending was down 2.9% in April 2023 to $23.3 billion, and down more than a quarter compared to April last year.
New construction lending led the decline, with established home lending up 0.6% over the month.
Overall, April's figure remains 21% higher than pre-pandemic figures posted in February 2020.
ABS head of finance statistics Mish Tan also pointed out that for owner occupiers, the value is 10.2% higher than pre-pandemic, yet the number is 5.3% lower.
The average home loan size has come down in recent months, and ANZ senior economist Adelaide Timbrell explained why.
"[This] suggest[s] either the continuing impact of falling home prices until mid-February on settled loans or perhaps higher-than-average deposits, as excess savings from 2020–22 impact lending behaviour," Ms Timbrell said.
Still, owner occupiers are borrowing much more than three years ago - the average loan size for owner occupiers in April was $584,000 compared to $480,000 in February 2020.
This is reflected in the latest CoreLogic housing values data, which showed a further 1.2% price jump in May - the strongest monthly increase since November 2021.
The lack of new listings on the market and supply crunch has reinvigorated FOMO, or fear of missing out, according to CoreLogic research director Tim Lawless.
"Advertised listings trended lower through May with roughly 1,800 fewer capital city homes advertised for sale relative to the end of April. Inventory levels are -15.3% lower than they were at the same time last year and -24.4% below the previous five-year average for this time of year,” Mr Lawless said.
RBA rate rises are wielded to temper demand and inflation, and have so far faced the supply problem, which drives up demand.
NAB's head of market economics Tapas Strickland believes rate rises will win in the end.
"The decline in lending is consistent with our view that the reduction in borrowing capacity from higher rates will hamper the sustainability of the recent rebound in dwelling prices and we forecast a further fall in dwelling prices of around 3.5% for a peak to trough decline of around 12%," Mr Strickland said.
Mr Strickland also noted the share of refinancing remains in the balance of fixed loans, making up 54.4% of the pool of refinances.
"With quarter-two and quarter-three 2023 the peak quarters for fixed loan maturities, the refinancing share of activity is likely to remain elevated or pick up further," he said.
This comes as ANZ adjusted its forecast for the peak RBA cash rate to hit 4.35% - implying two more hikes, potentially in June or July, and another in August.