Housing Industry Association (HIA) principal economist Tim Reardon said the credit crunch that has been impeding investors for the past 18 months isalso restricting building activity across the market.
Reardon highlighted that Australian Prudential Regulation Authority (APRA) regulations are hindering buyers from purchasing properties.
“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,” he said.
This disruption in the lending market can be seen through the level of residential building work entering the pipeline. The impact on actual building activity will be felt in the first half of 2019.
In its State and National Outlook Reports, HIA confirmed that the unexpected tight squeeze on credit for home buyers is causing further slowdown in building activity.
The year 2017-2018 saw more than 120,000 detached house starts, marking one of the strongest results on record. However, home starts are expected to drop by 11.4% this year and then by a further 7.4% next year.
“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,” Reardon said.
Lending to owner-occupiers building or purchasing new homes has dropped by 3.6% in September and is down by 16.5% over the year.
Reardon also urged banks to hold on to stable lending practices given that Hayne Royal Commission’s findings are about to be disclosed.
“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 maintain stable lending practices for fear of a destabilising influence on the housing market.”
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