THE release of the May 2023 building approvals and lending data shows "a welcome uplift" in higher density home building approvals, according to Master Builders Australia chief economist Shane Garrett. However, he has warned of "the need for sustained recovery" and cautioned against "unnecessary government-induced cost pressures".

Mr Garrett said higher density home building approvals jumped by 59.4 percent during May, recording their strongest monthly total since the end of last year.

“However, detached house building approvals remained flat during the month and are about 15 percent down on a year ago," Mr Garrett said.

“May’s sharp increase in unit/apartment building approvals is welcome given the severity of shortages in the rental market. 

“The difficult conditions in the rental market are the result of prolonged underbuilding in the medium/high-density part of the market. This dates from before the pandemic.

“The 12 interest rate increases we have endured so far have made it much more expensive to build new homes. Higher mortgage rates have also forced up the cost of providing homes to the rental market.

“Lending figures provide a good indication of what’s likely to develop on the ground over the coming months.

“The number of loans for the construction of a new home eased slightly during May (-0.2 percent) and a 5.1 percent uplift in the number of loans for the purchase of newly built dwelling. However, loans are still over 40 percent lower than a year ago,” Mr Garrett said.

Master Builders Australia chief executive Denita Wawn said while the bounce in higher density building approvals during May was welcome, new home lending data suggested that "tough times still lie ahead".

“We will need to see a sustained recovery in higher density home building volumes before the affordability crisis in our rental market starts to abate," Ms Wawn said.

“Combined with the larger than expected slowdown in inflation last week, today’s figures should give the RBA decent grounds for holding rates tomorrow (Tuesday, July 4).

“Increasing the construction of necessary new homes will contribute to alleviating inflationary pressures throughout the economy," she said.

“While the fight against inflation appears to be favourably shifting, it is crucial not to jeopardise progress by imposing unnecessary cost pressures through government regulation.

“By pumping up costs right across the economy, proposed changes to industrial relations would be very counterproductive in terms of beating inflation and unduly add costs to construction,” Ms Wawn said.

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"Despite record levels of migration, the number of new homes commencing construction is set to slow for at least the next 12 months,” Housing Industry Association (HIA) chief economist Tim Reardon said this week.

HIA released its economic and industry Outlook report on Frdiday. The report includes updated forecasts for new home building and renovations activity nationally and for each of the eight states and territories.

“There has been a rapid slowdown in the volume of new building projects entering the pipeline, especially new apartments, over the past year,” Mr Reardon said. 

“The sharp increase in the cash rate has compounded the barriers created by extraordinary restrictions on lending and investing, increased construction costs and regulatory costs.

“The rise in the cash rate is the key reason for the slowdown in the number of new homes commencing construction. There are long lags in this cycle and the full impact of the increases to date will not be apparent, until late 2024.

“Leading indicators of home building activity have fallen to exceptionally low levels. New home sales are almost 50 percent lower than a year ago. Lending for the purchase or construction of a new home has fallen to its lowest level since 2008," Mr Reardon said.

“The slowdown in the commencement of new homes is counter to the goal of increasing supply and delivering one million homes over the next five years.

“Beyond the rise in the cash rate, the supply of new homes is also constrained by a range of regulatory and cyclical challenges. The government’s Housing Australia’s Future Fund isn’t a solution to all of these problems, but it is a necessary step toward improving the supply of new homes.

“Removing barriers to investment, reforming local council planning processes and stable economic settings are also necessary steps,” Mr Reardon said.

www.hia.com.au

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THE Queensland Resources Council (QRC) has reported that a new international survey revealed the rising concern held by investors in Queensland’s resources sector "as a result of the State Government’s snap decision to introduce the world’s highest coal royalty tax".

QRC chief executive, Ian Macfarlane said Queensland dropped seven places in the survey -- a key index for international investors.

“In the Fraser Institute Annual Survey of Mining Companies 2022, on the question of Queensland policy perception, the state fell to 28th place just ahead of Brazil and Victoria, and 16 places behind Tasmania,” Mr Macfarlane said. 

“The results are not good for long term investment in the Queensland resources sector, not just coal.

“The Queensland Government introduced the high royalty increase for coal without consultation and with no regard to any stakeholders.

“Government policies play a significant role in a company or country’s decision to invest billions of dollars of into resources projects, and it’s clear many are now thinking twice about making those significant investment decisions in Queensland,” Mr Macfarlane said.

“The full impact of an investment downturn will be felt in five to 10 years when new projects dry up along with thousands of jobs.

“Queensland has abundant reserves of the resources the world needs, from coal through to the critical minerals that will drive a decarbonised future and we should be at top of mind for potential investors," he said.

“Queensland’s overall survey score was saved by the state’s attractive geology. On the eve of a Federal Budget that will again confirm the crucial importance of the resources sector to our economic strength, it’s time for the Queensland Government to reconsider its coal royalty tax increase.

“Queensland’s economy, and thousands of future jobs, depend on long term investment in our resources sector and the State Government needs to take serious notice of survey results like these.”

www.qrc.org.au

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THE latest National Housing Finance Investment Corporation (NHFIC) State of the Nation’s Housing 2022-23 report has confirmed builders’ concerns about achieving Australia’s housing needs.

Master Builders Australia CEO Denita Wawn said the report was more evidence "that we are falling well short of the 200,000 homes needed each year to keep up with demand and address housing affordability challenges".

“Rising interest rates and declining sales for new home construction is weakening the pipeline of new housing, which is compounded by a stronger than anticipated recovery in migration," Ms Wawn said.

“There is fragility and volatility in the industry at the moment that has been a consequence of businesses working predominantly with fixed price contracts that were set pre-COVID. 

“The industry has been relatively resilient over the last decade. Some of the insolvency data we are seeing coming through is a reflection of the challenges over the last 18 months, and we hope the worst is behind us. 

“But we are alert to the combination of rising inflation and interest rates, labour shortages and unnecessary government hurdles which are making it difficult for builders," MsWawn said.

“A strong building industry is the foundation of a strong economy. The inextricable ties between construction activity and the broader health of the economy are again on display in the current environment.

“To achieve better housing affordability and keep up with demand, changes need to be made to the way we do things, now and over the long term.

“The government needs to take the necessary steps to ensure interest rates do not need to rise any further and take some of the heavy lifting of our correction off mortgage holders and business owners. From here, there are no easy choices.

“There needs to be a conversation around fixed-price contracts and appropriate risk-sharing between banks, developers and builders,” Ms Wawn said.

Master Builders’ Delivering the housing needs for all Australians recommends policies around housing supply, workforce, supply chain risk and cost pressures, simplifying regulatory settings that support investment in housing and business productivity.

“Governments must lift the handbrake on the building and construction industry by bringing down the cost of doing business.

“We need around half a million new entrants into our industry by 2026 to ensure homes get built, and the broader construction ecosystem of infrastructure and commercial premises can be delivered.

“Governments need to look at what impact their regulations and policies have on the cost of building homes and on the cost of building social infrastructure; that includes industrial relations laws, the cost of planning and the need for more titled land.

“The Housing Accord is the start of this national coordination, but we can’t wait until 2024; action by states is needed now.

“There is no silver bullet; this will take a concerted effort by all levels of government working in collaboration with industry,” Ms Wawn said.

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