The number of new homes being built has dropped by 15.2% this year on the back of the low number of building approvals in the first three months of 2019. An additional decline of about 11% in activity throughout the year is also expected, according to the Housing Industry Association (HIA).

“Preliminary data suggests that the housing market has adjusted from a strong annualised rate of home building of around 220,000 homes per year this time last year, to around 183,000 at the start of 2019,” said HIA’s Chief Economist Tim Reardon. “We had anticipated that this correction to new home building would take two years, not six months.”

HIA reported that market confidence declined in the later part of 2018 as dwelling prices corrected. The shift adversely impacted all segments of the market, with investors and owner-occupiers delaying purchase decisions and foreign investment falling due to a range of government restrictions.

The start of the year looked promising for the building industry with a strong national economy anticipated to pull the home building industry through the downturn. However, GDP slowed.

Slashing interest rates in 2019 will not have the same positive impact on new home building as in previous cycles, according to HIA Chief Economist Tim Reardon.

“The RBA has repeatedly stated that it is looking for deterioration in the labour market before it moves to lower interest rates further. There is a risk that if they wait for this trigger, it might be too late for the home building industry which will adjust employment levels for this lower level of activity,” he said.

Reardon emphasised the significance of credit squeeze in the results by saying that an easing of APRA’s lending restrictions would have a more significant impact on home building and the broader economy, than another cut to interest rates alone.

“Regardless of the timing of a cut to interest rates or the repeal of regulatory restrictions in the housing market, the impact of a slowing economy and the ongoing impact of the credit squeeze will continue to force new home building lower,” he said. “As a consequence, there is a need to downgrade our expectations of the speed of the current downturn in the housing market further.”