New house starts decline again, but does construction need a stimulus?

The latest dwelling commencement figures from the Australian Bureau of Statistics show that, on a seasonally adjusted basis, new house starts declined by 2.5% in the September quarter.

This was the fourth decline in new housing starts in five quarters leading the HIA to ask for a government stimulus concerning.

I’m not sure he’s right.

HIA Senior Economist, Andrew Harvey said, “Private sector detached housing starts have now fallen for five consecutive quarters reflecting the combination of a dawdling rate of policy reform in terms of reducing the high cost of new housing and a deterioration in household confidence.”

New housing starts peaked in the December quarter of 2009. Since then, like all things in real estate, different markets have performed differently.

Overall, the construction of new housing fell by 6.2% in the September quarter.

Housing starts

The latest figures show that the largest rises in private sector house commencements were experienced in the Northern Territory (11.4%), Queensland (10.8%) and Western Australia (5.3%), while the largest falls occurred in Tasmania (-17.8%), South Australia (-14.9%) and the ACT (-12.1%).

Unit starts
The “other” residential building (flats, units, attached townhouses, villas and terrace houses) declined by 12.2% in the September quarter.

Queensland (+16.4%) and the Northern Territory (+30.7%) were the only states or territories to experience an increase in dwelling unit commencements this quarter.

My thoughts:

The HIA represents the interests of the building industry and I must declare an interest, as the construction company I’m a major shareholder in is a member of the HIA.

But I don’t agree that the answer is to offer a stimulus to boost new construction.

In my recent market update I explained how we now have an oversupply of properties in many markets. You can read more about this by clicking here

The 2 recent interest rate cuts have restored a little confidence, but haven’t proven to be quite the shot in the arm many were hoping they would be

I see interest rates falling again in 2012 and this together with a slight further fall in some property values will slowly bring buyers back into the property market.

But in the past we’ve seen first home owners’ boosts push young people into buying housing before they planned to. All this does is bring forward demand and encourage builder to build more houses. Inevitably the pendulum swings to far and we end up with an oversupply – like we have now.

The market has to take its time to soak up the oversupply and then prices will increase and building starts will once again rise.

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About

Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


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