New home building in Australia facing "toughest year in almost a decade"

New home building in Australia facing "toughest year in almost a decade"

Master Builders Australia has forecast a challenging year ahead for the housing market as slowing mortgage credit and political uncertainty take their toll on activity.

The group's chief economist Shane Garrett (pictured below) expects this to be the "toughest year in almost a decade" with declining house prices and fallout from the Royal Commission "really starting to bite".

"About 234,000 new homes were started at the peak of the market in 2016/17. We anticipate that output will decline to 210,200 during 2018/19 overall and fall to 197,500 during 2019/20," Garrett says.

"A succession of further declines will bring new home starts down to 175,900 by 2022/23."

Garrett emphasises new home building was lifted to record levels by a mix of strong population growth, big house price gains, "super low" interest rates and keen demand from foreign buyers.

"Several of the ingredients that made up this favourable mix are no longer in place. House prices have seen sizeable reductions in a number of key markets, while state governments have erected prohibitive barriers to foreign buyers," he says. 

"Reaction to the Hayne Royal Commission has slowed the circulation of mortgage credit within the housing market and this is the biggest factor holding activity back at the moment. 

"Uncertainty in the lead up to the upcoming Federal Election is also delaying activity in the market. People want to know what the colour of housing policy will look like before they enter into commitments."

Despite this, he explains the fundamentals of the Australian economy are actually "pretty solid" with a robust labour market fuelling a healthy pace of migration-driven population growth.

"As a result the underlying demand for new home building is still elevated but unfortunately this is not being translated into stronger activity on the ground because of the credit crunch and decision paralysis ahead of the election," he says. 

"It is vital that we get urgent clarity from all parties on exactly what they will do once the Federal Election has been concluded."

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