New housing supply will likely be impacted by a changing financing market for property investors, an industry boss predicts.
Tim Reardon, principal economist at the Housing Industry Association (HIA) has said the credit squeeze that has been impacting investors for at least the last 18 months, which has being felt in reduced house prices, is now being felt in the construction industry, which has put a dampener on residential building activity.
“The fallen house prices tends to cool first home buyer activity in the market as well as cooling other owner-occupiers activity, so as a consequence, the fallen house prices are likely to lead to lower levels of building activity in the market,” Mr Reardon said to Smart Property Investment.
“APRA’s restrictions were designed to curb high risk lending practices but we are now seeing ordinary home buyers experience delays and constraints in accessing finance.
“If these disruptions to the home lending environment prove to be long lasting then we could see building activity retreat from the recent highs more rapidly than we currently expect.
Breaking it down to Smart Property Investment, Mr Reardon said is that because of the increasing barrier to accessing finance, there are less home buyers entering the market, and less new homes beginning construction, which will see supply begin to decline in six to nine months.
New home starts are expected to decline by 11.4 per cent over the course of this year, and then by an additional 7.4 per cent in 2019, he said.
However, overall supply is on track to potentially surpass previous heights in a few years’ time.
“At this stage, we have to keep in mind that building market is cooling from very high levels of activity and we’re expecting that there would be a downturn over the course of the next couple of years,” Mr Reardon said.
“Even at the end of that downturn, we still expect building activity to be well above historical averages. In fact, it may even be as high as our previous peaking building activity.”
The overall impact on housing prices, Mr Reardon said, would then place upward pressure on housing prices.
Moving forward, the principal economist said the banks need to show signs of stability.
“With the prospect for the release of the Hayne royal commission’s findings to trigger further upheaval in the banking system, we need the banks [to] maintain stable lending practices for fear of a destabilising influence on the housing market,” Mr Reardon concluded.