Australia is on the cusp of home building hitting a decade low at the same time demand for housing has reached crisis levels.
The HIA New Home Sales report found that sales of new homes across Australia fell 2.4 per cent in July.
HIA Senior Economist Tom Devitt said this suggests the pipeline of new construction is going to fall next year as a result of the slowdown.
“This month’s decline leaves sales in the three months to July 2023 down by 33.4 per cent compared to the same period in 2022,” Mr Devitt said.
“Weak new home sales, together with an elevated number of previous sales being cancelled, reinforce the expectation that Australia will see a decade-low level of home building next year.”
New home sales decreased in most states in July, led by Queensland (-11.6 per cent) and Western Australia (-9.3 per cent), New South Wales (-1.6 per cent) and Victoria (-0.6 per cent).
South Australia was the only state to see an increase with new home sales up 35.5 per cent.
Over the past three months, new home sales have trended lower, with Queensland (-52.3 per cent) New South Wales (-48.4 per cent), Victoria (-37.2 per cent) and South Australia (-26.0 per cent) all showing a sharp decline.
Mr Devitt said even if the Reserve Bank of Australia (RBA) decided to start cutting rates there would be a lag in construction.
“Even a cut to the cash rate now would not produce a recovery in new house commencements until the second half of 2024,” he said.
He said the falls come at a time when the housing crisis is getting worse.
“Underlying demand for housing continues to be supported by population growth, acute shortages of rental accommodation and strong employment figures,” he said.
“Meeting the appropriate levels of new housing for Australia’s current and future population will require changes to the other policies that inflate construction costs.
“These are not only interest rates, but also tax settings, land release and planning reforms, and macro-prudential rules that squeeze out owner-occupiers and investors alike.”
Mr Devitt said the government’s commitment to build 1.2 million homes is a welcome step in the right direction.
“The National Cabinet’s recent announcement to increase its five-year housing supply target is a welcome step in the right direction,” he said.
“Coordination among all levels of government and the industry will be crucial to achieving this goal.”