26 February 2020: Property industry tipped for ‘modest’ recovery in 2020

174,770 new homes began construction during 2019 in Australia, down from 225,061 in 2018 according to new data from the Housing Industry Association.

This is the sharpest contraction in home building since the period following the introduction of the GST in 2000 and is a significant reason behind the slow national economy, said the HIA.

Tim Reardon, Chief Economist at HIA said “the overall housing market reached a turning point at the end of 2019, buoyed by interest rate cuts and house price growth.”

“The next upswing in new home building will not see a return to the hive activity of the boom years, 2014 to 2018.

“Population growth has pulled back … but has nevertheless remained relatively strong, just shy of 400,000 people per annum,” said Mr Reardon.

Strict home loan rules restrict home building

“A credit squeeze was a key brake on the previous cycle,” said Tim Reardon, “And while some restrictions have since loosened there has been a structural tightening of how we lend money in this country.”

Over 2018 and 2019, banks and other lenders reacted to new restrictions imposed by regulators and changed how many loan applications are assessed. Buffer rates were changed, interest-only loans were discouraged with higher rates and investors faced additional scrutiny.

Tim Reardon says these loan rules put a brake on new home construction.

“Tighter lending standards are excluding many aspiring home-owners from the mortgage market and will continue to adversely impact home ownership rates.

Mr Reardon said usually when owner-occupier demand for new homes falls, investors step in to grab bargains.

“Except this time round we wouldn’t count on the same wave of foreign investment, given the barriers they now face with punitive rates of stamp duty.”

In reaction to high house prices, governments introduced higher duties and new restrictions on foreign property buyers in 2018.

“As a consequence, we expect upward pressure on rents,” said Tim Reardon.

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Property recovery in Australia will be “a modest affair”

Because of a clamp down on risky home loans by regulators in 2019, following the recommendations of the Hayne Royal Commission into banking and financial services in 2018, the Housing Industry Association is tipping only a very modest recovery in the property market in 2020 and 2021.

“As for the anticipated recovery in new home building we think it will be a very modest affair,” said Tim Reardon, economist with the HIA.

“At best, this next cycle will see the current rate of home building maintained, with slow growth in coming years.”

During the property boom years of 2014 – 2018, nearly 117,000 detached houses were being constructed per year said the HIA.

Detached housing starts are now tipped to rise from 101,390 houses in 2020/21 and reach 104,350 in 2022/23.

Units and apartment construction hit by global jitters

On average, during the 2014-2018 property boom in Australia, the industry was commencing construction on almost 105,000 multi-unit homes per year, said the HIA.

In 2020/21, the HIA is predicting 75,750 multi-unit home commencements.

That will rise steadily to about 81,000 by 2022/23.

Auction clearance rates continue to improve

Auction clearance rates continue to improve, despite additional numbers of homes being auctioned, adding weight to the property recovery.

In Sydney, 82 per cent of the 827 residential property auctions held on Saturday 22 February produced a sale, up from 61 per cent on the same weekend last year.

In Melbourne, 79 per cent of the 1123 residential property auctions held on Saturday 22 February produced a sale, up from 55 per cent on the same weekend last year.

Other capitals are also showing improved auction results, when compared with 2019.

This article is general news and information. This article is not financial advice.

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