Activity in lending to finance new home construction throughout Australia has hit its lowest level in more than fourteen years, new data shows.

Released by the Australian Bureau of Statistics, the January Lending Indicators report indicates that the number of loans which have been made to owner occupiers for the purpose of either constructing a new home or purchasing a newly constructed home fell by 8.2 percent in January to reach just 4,345 – the lowest level on record since November 2008.

The latest data – along with earlier data showing that building approvals are at 10-year lows – adds to growing concern that the current downturn in new home construction will be deeper compared with what had originally been hoped.

Largely speaking, the downturn is being driven by the aggressive cycle of monetary policy tightening which is being pursued by the Reserve Bank of Australia (RBA).

Since May, the Bank has increased rates for nine consecutive months (excluding January when the RBA board did not meet).

Further increases are anticipated when the RBA meets on Tuesday and potentially again when the board meets in April.

As a result, housing construction lending activity has contracted for nine consecutive months, and is expected to fall further as more of the effect of the monetary policy tightening flows through.

Housing Industry Association Senor Economist Tom Devitt said the latest data is concerning.

Devitt says construction lending activity is likely to continue to contract until the second half of the year at the earliest as the full impact of the rate increases flows through.

This will compound the effect of rising development and construction costs (land, labour and materials) as well as further increased costs associated with compliance with new energy efficiency and accessibility requirements in the National Construction Code.

“ABS data released today is reaching new lows, with lending for new homes recording its weakest month in almost 15 years,” Devitt said.

“There were just 4,345 loans issued for the construction or purchase of a new home in January, the weakest month since November 2008, and 8.2 per cent down on the previous month.

“Owner occupiers and investors, alike, continue to retreat from the market. First home buyers, especially, were issued fewer loans in January 2023 than in any month in the last six years.

“Even lending for renovations – the part of the sector expected to hold up relatively well during this downturn – had its weakest month in almost two years.

“The data continues to reflect the weight of interest rate increases which occurred in 2022, and before the RBA increased the rate again in February, with the promise of more rate increases to come.

“There are significant lags evident in this cycle and we are unlikely to see the bottom in this data until the second half of the year, at the earliest.

“The higher cash rate is compounding the adverse impact of the rising cost of materials, labour and land as well as the increased costs of compliance with the building code.

“There remains a large volume of work underway that will be completed in 2023 and this will keep national unemployment exceptionally low until early 2024.

“By continuing to raise rates the RBA risks a longer and deeper slowdown in economic growth than is necessary.”


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