The Housing Industry Association (HIA) recently stated that the recent slowdown in new home construction will continue as new home sales decline.
The rate of new home sales has dropped by 27.1% since its high in April 2014. While this equates to a small decrease of 0.5% per month, the ongoing declines in this segment of the market indicate how established this trend is in the wider property market.
Data released by the Australian Bureau of Statistics (ABS) supports the HIA’s findings. ABS data released in October found that new house starts were down in July and August 2018 by 9.4% and 13.6% respectively. These are the lowest new home start figures since October 2016. This recent decrease in new home starts is likely to be driven by decreasing home values, tightened lending criteria and declining immigration figures.
New apartment building starts have experienced a deeper decline than private detached housing starts. According to the ABS, approvals for apartments decreased by 17.2% in August. This represents a 23.7% decrease from 2017.
According to the HIA, a 10.6% decrease in new home starts is expected in 2019. This means new home starts would equate to 193,600 homes which is still a historically high number of new homes.
Given new home starts have fallen continuously from historical highs in April 2014, the current numbers don’t represent a trend that should cause concern.
The recent declines in new home starts aren’t being experienced in some parts of Australia. In Western Australia, for example, new house sales increased by 3.8 per cent in August 2018. For detached houses (old and new), performance in August was mixed. Private detached sales grew by 6.1% in South Australia, by 3.8% in Western Australia and by 0.7% in Queensland. In New South Wales and Victoria, private detached home sales decreased by 7.3% and 7.1% respectively.
As the Australian housing market consolidates before its next cycle of growth, a decrease in new building starts (for detached homes and apartments) is natural. For your investment portfolio, it’s important to take the stage of the market cycle into consideration as you make changes to your current portfolio or look to add new properties.
The HIA’s figures are drawn from the HIA New Home Sales report which is a monthly poll of Australia’s largest home builders across the five largest states in Australia.