The Reserve Bank of Australia decided not to cut the cash rate earlier this week. While a cut might have eased some of the pressures in the housing market, the acceleration in the downturn in building activity in the previous year was largely due to regulatory imposts from state and federal governments, according to the Housing Industry Association (HIA).
The industry group reported that the contraction in the housing market over the past six months has occurred faster and is larger in scale than the decline experienced after the global financial crisis. The downward movement occurred at a time when lending rates have remained relatively stable.
“Governments should be looking at measures to make home ownership more accessible to households, both as owner-occupiers and investors. Removing the counter-cyclical measures introduced at the peak of the housing cycle would be a good place to start,” said Geordan Murray, HIA senior economist.
Murray said that the move would include reviewing the appropriateness of assessing loan serviceability against an interest rate of 7%. In addition, the reversal of the punitive rates of stamp duty on foreign investors is overdue.
“These measures would assist in restoring the confidence in the housing market that was lost in 2018,” said Murray.
The industry is still completing work on existing projects, but there are now fewer new projects
about to begin. Approvals for the construction of new homes for the first three months of 2019
equates to an annualised level of home building of around 180,000 starts. This compares to 220,000
starts in 2018, according to HIA.
“Unless there is an improvement in housing activity, employment conditions in the building sector will continue to ease during 2019. Any measures that increase the tax burden on homes, such as an increase in capital gains tax, would cause a further contraction in the market and exacerbate employment losses,” said Murray.