The popularity of building a new home has shown resilience in recent months, but three factors are about to test buyers' appetites.
The Housing Institute of Australia (HIA) has released its report on New Home Sales for the month of April, showing that despite economic uncertainty and cash rate hikes, buyers were increasingly deciding to build new standalone homes.
Recent data from the HIA shows that sales of new homes increased over the month of April. Image: Getty
New home sales in the month of April increased by 4.9% according to the report, which collects its data from the largest volume home builders in the five most populous states to form an indicator of future detached home construction.
The results were driven by Victoria, with a monthly increase of 20.9%, followed by South Australia (+11.5%). Queensland experienced a decline of 14.9% followed by New South Wales (-3.1%) and Western Australia (-1%).
Three factors affecting customer confidence
HIA’s chief economist Tim Reardon called the month’s report a “solid result,” and noted that this puts sales in the three months to April 4.6% higher compared to the previous quarter.
Mr Reardon noted that even with interest rates rising, “strong population growth and low unemployment continue to sustain demand".
“These fundamentals suggest that, while interest rates are an important factor, they will not materially alter the underlying need for new homes.”
He also noted, however, that some of the positive growth could be attributed to momentum carried over from late last year when the economic environment appeared more stable.
“Emerging domestic and global uncertainty will pose risks to new home building, with the coming months providing clearer evidence of how sensitive demand is to the current environment,” he said.
The impact of recent alterations to negative gearing and the captial gains tax (CGT) discount could also have an impact on future sales.
Even with a carve-out for new homes, Mr Reardon said that the changes were likely to weigh on investor participation.
“Given investors account for a significant share of new home building, any pullback could see even greater constraints on housing supply moving forward.”
Metricon CEO Brad Duggan said that the builder’s performance in April substantially exceeded the average reported by HIA, noting that "there is still underlying demand for new homes”.
“Demand has not disappeared; buyers are simply more considered. They are watching interest rates, construction costs, established home prices and policy settings closely before they commit.”
Mr Duggan said the next three months would be “an important test of confidence”.
“Our expectation is cautiously optimistic. While the recent impacts of the Middle East crisis, three interest rate rises this year and significant changes from the Federal Budget are all assaults on customer confidence, we have been very happy with the resilience we have seen among our customers in the current environment.”
Support needed to increase building speed
How home building will fare in the coming months as domestic and international factors play out remains to be seen. As builders weather these changes, Mr Duggan noted that the single biggest lever that governments could pull related to the availability of land.
“Governments and councils can do more right now to give the home building sector greater certainty. The most important lever is faster delivery of land, infrastructure and approvals,” said Mr Duggan.
Mr Duggan’s comments were echoed by NEX building group – parent company of brands such as McDonald Jones Homes and Mojo Homes.
A spokesperson from NEX commented that the company hoped to see local goverments getting involved with speeding up the building process, in particular by “improving DA process for land developments”.
“Combine this with improving building approvals processing. Both actions would reduce time and cost associated with the developments.”
NEX currently has a partnership underway with Newcastle Council to work together on initiatives to speed up approval times.
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