New house starts increase in only one state – Diwa Hopkins

A further sign of a tightening market with the HIA reporting new home approvals fell by 9.1 per cent in November to reach their lowest level since August 2013.  We ask Diwa Hopkins, Economist from the HIA what it means and is word that only one state has recorded growth.
Kevin:   While at a time when governments everywhere are trying to encourage more home building for obvious reasons, it adds a lot to the employment sector within Australia and that adds to our economy.
Kevin:   New home approvals fall to a five year low, which is somewhat of a concern falling by 9.1% in November last year. Diwa Hopkins, HIA economist, joins me to talk about this.
Kevin:   Is this a big concern, Diwa?
Diwa:   Well it is a substantial decline in approvals for just one month, so the numbers of homes that were approved for construction in November last year, they were 9.1% lower than what occurred in the previous month so that’s quite a significant downturn and a sharper drop than what many were expecting and I suppose it highlight the effect that credit squeeze is now having on the residential construction sector. And at this stage, I suppose what we take away from this result is that there are risks that the emerging downturn in residential construction, that this downturn could transpire to be a little stronger and could occur more quickly than what we’re currently expecting.
Kevin:   What area is the decline most obvious in is in multi-unit developments.
Diwa:   Yes, that’s exactly right. In the month of November, approvals for non-detached housing fell by 18%. So this series is typically very volatile just by the very nature of multi-unit developments in that, you know, one project could represent up to sort of 50 homes. That series is prone to volatility but even accounting for this volatility, an 18% fall in the month is very strong. We also saw detached housing approvals fall, but much more modestly by 2.3% in the month of November.
Kevin:   Would I be correct in saying this is obviously a demonstration of the concern from developers that they may be losing confidence in the market, holding on to sites as opposed to developing them?
Diwa:   Yeah, that’s true and I suppose what also developers having to contend with is the tighter credit conditions in that their clients are gonna be struggling to obtain finance, so we’ve got our own research that shows that the time it takes to obtain a loan to build a new home, that time has blown out from about two weeks to now two months. And our builder members are also reporting to us about half of their clients are just not receiving a loan approval at all.
Kevin:   Is there any indication, contracts that have taken out and then for whatever reason, the bank may change the ground rules that they can’t be settled?
Diwa:   Yeah, there are concerns around settlement risks that people who may have bought and put deposits down, they bought off the plan and they’ve put deposits down that they come the actual completion of the building that the new credit environment means that these clients aren’t able to settle on their homes. That is a growing risk, but I think at the moment, developers have planned and accounted for about 1% settlement risk.
Kevin:   New home approvals, as we said at the start, falling by 9.1% in November. That’s nationally. State by state, how did they fail?
Diwa:   The concentration of decline was in New South Wales and Victoria. The upswing in approvals activity was similarly concentrated in these two states with obviously apartment construction being significant and so from those very high levels of activity, we’re starting to see approvals now come back.
Kevin:   Yes, by contrast you look at Victoria falling by 14.6% and you said Wales by 9.3%, which is what you’ve indicated. But Tasmania, once again the stand out. An increase in approvals of 30.6%.
Diwa:   Yeah. That’s right. So Tasmania’s housing market on several indicators have out performed the rest of the country, particularly the eastern seaboard states, mainland states that is, and that demonstrates the underlying strength of the Tasmanian economy, underpinned by a strong tourism sector and finally population growth is much stronger. People are now moving to Tasmania from the mainland rather than in previous years. You know you had this exodus of people moving away from Tasmania on to the mainland states and so all of this has transpired into a very strong housing sector and in fact the industry is trying to keep up with that strong demand for additional housing in state there.
Kevin:   Thanks for your time.
Diwa:   Okay. Pleasure.

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