Loans for new homes fall 2.1pc as mortgage demand picks up

The growing sense that the cycle of interest rate rises has ended – even if hopes of cuts are being pushed back from original expectations – is giving further impetus to a housing market already defying higher borrowing costs that chalked up a 14th month of gains in March.

But the latest housing figures also painted a dismal picture for the prospects of new housing development.

The value of loan commitments for new housing construction fell 2.1 per cent in February after a decline of the same size in January, making the $1.6 billion monthly total the weakest since September, highlighting the difficulty of making new housing projects stack up for buyers and developers at a time of higher construction and borrowing costs.

‘Overly restrictive’ rules

For the past 18 months, the average monthly volume of loan agreements for new home builds had been the lowest in 20-year history of this data series, the Housing Industry Association said.

“This is a deeper and more sustained downturn in lending for home building than any other period observed in the past 20 years,” HIA chief economist Tim Reardon said.

“The rise in the cash rate is the primary cause of this poor result in new home lending. Higher interest rates are compounding the impact of the rise in the cost of construction caused by elevated land, labour and material prices. This is further exacerbated by macroprudential rules that remain overly restrictive.”

The figures point to weaker home-building this year and next, which will act as a further brake on national cabinet’s target of building 1.2 million new homes over the next five years.

“Loans for the construction of dwellings continue to slide, however... pointing to weaker building activity later in 2024 and into 2025,” the CommSec economists said.

“Higher borrowing costs are compounding the impact of the rise in the cost of construction caused by still-elevated land, labour and material prices.”

Before adjustments to account for seasonal fluctuations, total loans issued in the three months to February 2024 for the construction or purchase of new homes rose in WA by 28.2 per cent from the same period a year earlier.

SA had growth of 6.7 per cent and Queensland rose 0.5 per cent.

Elsewhere, lending for new home building declined. NT slumped 34 per cent, Tasmania nearly 32 per cent, ACT almost 28 per cent, NSW 12.4 per cent and Victoria 5.9 per cent.