Genworth FY16 Results Highlight Changing Market Conditions

Lender’s Mortgage Insurer Genworth released their results to December 2016 today. From it, we get insights into the changing nature of the housing market, and also a view of the pressure LMI’s are under.

Genworth reported a statutory net profit after tax (NPAT) of $203.1m, down 10.9% on prior year. After adjusting for the after-tax mark-to-market move in the investment portfolio of $9.1m, underlying NPAT was $212.2m down 19.8% on prior year. The loss ratio was 35.1%, compared with 24% last year. They remain strongly capitalised, and though claims are higher, they declared a final fully franked dividend of $14.00,  a FY16 payout ratio of 67.2%, but down from last half.

Banks are clearly writing less high LVR mortgages, thanks to APRA, and when households default, and are forced to sell, there is sufficient capital appreciation in most properties to avoid a LMI claim due to strong price rises.  The banks, can’t loose! (Remember the LMI protects the bank, not the borrower). However, in regions where prices are falling – for example in the mining belts of WA and QLD, and home prices are falling, claims are up. This does not bode well if home prices were to revere more widely.

Genworth was listed in 2014, but since then has completed share buy-backs to reduce the number of issued shares. Further restructure will simplify the corporate structure in 2017, with a view to driving efficiency. They are the only separately listed LMI in Australia, (the banks have their own LMI captives, and the other player in the market is less transparent).

We will look at the market data they provided first, then look at the drivers of their results more specifically.

Genworth had an in-force portfolio of approximately $324 billion at Dec 2016. Standard LMI accounted for 91% of the book, and Low Doc 5%. 26% of the book relates to Investment loans.

The seasoning picture is interesting.  This shows the evolution of Genworth’s 3 month+ delinquencies (flow) by residential mortgage loan book year, from issue.

The delinquency population by months in arrears aged buckets shows that over the past two years, the mortgagee in possession (MIP) as a proportion of total delinquency is trending down. This is because the strong property market has allowed stressed households to sell and release equity, with no LMI claim.

With regards to the current results, a range of factors influenced the lower outcomes.

New Insurance Written (NIW) fell 18.4% in FY16, to $26.6 billion. Moreover, NIW above 90% LVR decreased 39.8%, and 80-90% LVR fell 17.2%. This reflects changing appetite among lenders for higher LVR business, following regulatory intervention from APRA.

Lower Sales (Gross Written Premium – GWP) fell 24.8% compared to previous period due to the lower number of high loan-to-value (LVR) penetration in the market and a lower LVR mix of business.

The average price for Flow (GWP/NIW) decreased from 1.63% to 1.51% in FY16. However, they got some benefit from premium repricing in the second half.

Lower Revenue (Net Earned Premium) – NEP fell 3.6% reflecting lower earned premiums from current and prior book years.

Higher Net Claims Incurred – Net claims incurred increased by $46.1 m to $158.8m due to an increase in the number of delinquent loans relative to a year ago, and a higher average claim amount.  The performance in QLD and WA is “challenging”, reflecting increased delinquencies, especially in resource exposed regions. NSW and VIC were better performers.  Overall, the delinquency rate rose from 0.38% to 0.46%.

Whilst financial income (interest income and realised and unrealised gains/losses) increased by $18.1 m, to $126.0 m in FY16, the yield on the investment portfolio dropped 3.69%.

Regulatory capital fell from $2,600 m in 2015 to $2,213 m in 2016. CET1 decreased in FY16 mainly reflecting the $250 m of dividends, $202 m capital reduction and $86 m decrease in the excess technical provision, offset by $203 m NPAT. Tier 2 capital decreased following the redemption of $50 m of the $140 m notes issued. The PCA coverage ratio was consistent with FY15.

Do Investment Property Investors Also Use SMSF’s?

We recently featured our analysis of Portfolio Property Investors, using data from our household surveys. We were subsequently asked whether we could cross correlate property investors and SMSF using our survey data. So today we discuss the relationship between property investors and SMSF.  We were particularly interest in those who hold investment property OUTSIDE a SMSF.

To do this we ran a primary filter across our data to identity households who where property investors, and then looked at what proportion of these property investors also ran a SMSF. We thought this would be interesting, because both investment mechanisms are tax efficient investment options.  Do households use both? If so, which ones?

We found on average, around 13% of property investors also have a self managed super fund (SMSF). Households in the ACT were most likely to be running both systems (17%), followed by NSW (14%) and VIC (12.8%).

Older households working full time were more likely to have both an SMSF and Investment Property, but we also noted a small number of younger households were also using both tax shelters.

We found a significant correlation between income bands and use of SMSF among investment property holders (this does not tell you about the relative number of households across the income bands, just their relative mix). Up to 30% of higher income banded households have both a SMSF and Investment Property.

Finally, we look across our master household segments. These segments are the most powerful way to understand how different household groups are behaving.  The most affluent groups tend to hold both investment property and SMSF – for example, 30% of the Exclusive Professional segment has both.  Less affluent households were much less likely to run a a SMSF.

This shows that more affluent households are more able and willing to use both investment tax shelter structures. It also shows that any review of the use of negative gearing, investment properties and the like, needs to be looked at in the context of overall tax planning. Given the new limits on superannuation withdrawals, we expect to see a further rotation towards investment property, which as we already explained has a remarkable array of tax breaks and incentives. We expect the number of Portfolio Property Investors to continue to rise whilst the current generous settings exist.

Foreign investors forced to sell $100m of property

From Australian Broker.

The government has forced a number of foreign nationals to sell 15 Australian residential properties after breaching the foreign investment framework.

 

“We’ve taken further action on ensuring that Australian home buyers get a fair go when it comes to buying whether it’s their first home or subsequent home by ensuring that our rules on foreign investment are enforced,” said Treasurer Scott Morrison in a doorstop interview yesterday (6 February).

In 2015, the government announced an amnesty for foreign investors who had purchased property illegally. From 2 May to 30 November, investors could notify the government and, although they would be forced to sell, would suffer no penalties as a result.

Since the end of the amnesty, the total number of forced sales has reached 61 with a combined total of $107 million. The 15 most recent properties were all located in Victoria and Queensland and have a combined purchase price of over $14 million, according to the Treasurer’s office.

“Over $100 million worth of residential real estate assets, owned and illegally acquired by foreigners, have been forced to divest. Another 15 properties today. And it’s not just at the high end of the market, it’s the low end of the market as well where many Australians are trying to get into the market,” Morrison said.

The foreign nationals – who come from countries such as China, India, Indonesia, Malaysia, Iran, the United Kingdom and Germany – purchased their properties without approval from the Foreign Investment Review Board (FIRB).

In some cases, foreign nationals held multiple investment properties in breach of regulations. These breaches were uncovered through data matching programs as well as information gathered from the public.

The Australian Taxation Office (ATO) has detected over 570 foreign nationals who have breached the rules, resulting in forced sales, self-disposals, amendments to previously approved FIRB applications and retrospective approvals with strict conditions.

Breaches result in civil penalties or criminal prosecution with the 388 penalty notices given to foreign nationals attracting penalties of more than $2 million.

Criminal penalties were increased on 1 December 2015 to $135,000 or three years imprisonment for individuals and $675,000 for companies. Additional civil penalties of up to 10% of the market value of the property can apply to foreign owners who purchased their property without FIRB approval after this date.

For those who purchased their property before 1 December 2015 without FIRB approval, criminal penalties include an $85,000 fine or two years imprisonment for individuals or $425,000 for corporate entities. Civil penalties of up to 25% of the market value of the property can also apply.

This new regime allows for a graduated approach to penalising foreign investors – ranging from issuing infringement penalties through to civil and criminal penalties. This lets the ATO match the penalty to the behaviours found.

“We’re trying to ensure, I think with some success, that our foreign investment rules are enforced on every occasion and for those who think they can creep in, and snatch away some property from the hands of Australian home buyers, well, we have got news for you, you will be forced to sell it and to do that forthwith,” Morrison said.

 

6 astonishing features of Australia’s current house price boom

From Business Insider.

The Australian housing boom, which has seen Sydney and Melbourne prices climb to record levels, is very different from previous cycles. This time around speculation has played a bigger role, which coupled with near record low interest rates and dropping rental yields, should produce red flags galore.

Home values, particularly in Sydney and Melbourne has defied expectations and climbed. Sydney home prices have doubled since 2009 and also soared in Melbourne by 85% in that period and there are no signs of prices reversing course. Landlords have driven up the market, leaning on the tax breaks of negative gearing.

Prices have risen so much that the amount required for a 20% home deposit has jacknifed on savers in recent years.

Here are six reasons why the boom is different this time:

1. Investors continue to fuel the price rally: Investor housing credit jumped by 0.8% in December, the largest monthly increase since June 2015, the Reserve Bank of Australia said. That followed data from the ABS which revealed investor housing finance jumped by 4.9% to $13.269 billion in November, also the largest increase seen since that time. Lending to investors has has now increased in six of the past seven months, with the November figure up 21.4% on a year earlier. While investor activity tempered last year after regulators urged banks to limit the growth in the segment to under 10%, in order to preserve financial stability, it is rearing its head again.

2. Not one or two, but multiple properties owned by a single investor: The number of investors with multiple properties continues to soar. From less than 10% of all investors five years earlier, it is around 16% nationally now, and on the east coast, about 18%, according to Digital Finance Analytics, a research firm that produces a mortgage report with JPMorgan. That isn’t wrong, per se but therein lies the problem. A large number of landlords lean on rapid rises in the value of their exiting assets to fund the next one. Put simply, they revalue the properties regularly and borrow more and more. That’s not a problem right now, but it could come back to haunt investors, banks and the broader property market if and/or when price falls and interest rates turn.

Digital Finance Analytics

3. Flipping properties: Another trend this time around is that investors are increasingly offloading properties sooner. As rental yields diminish, investors are resorting to the only available avenue to keep total returns up. They buy a property and in a year or so sell at a profit and then start again. In past cycles, about 95% of landlords bought a house and held it for many years. Now that number has shrunk to less than 90% and continues to slip, according to Digital Finance Analytics. This could also point to the build up of stress among investors as investment doesn’t pay for itself thanks to soaring home prices. As such risks associated with monthly cash flow will continue to rise, Martin North, principal at the research firm says.

Digital Finance Analytics

4. Stress building: Figures from ratings agency Standard & Poor’s show a two basis point lift in the number of mortgages more than 30 days in arrears to 1.16% — the second straight monthly rise, bucking a trend of steady falls between April and November 2016. Digital Finance Analytics goes a step further and warns that if homeowners are able to meet to loan repayments in an era of ultra-low interest rates, than an increase in mortgage costs could push one in five into severe stress and a big jump in defaults.

5. Falling rental yields: Rapid house price growth, combined with an increase in housing supply, slower population growth and weak rental growth mean gross rental yields have tumbled to fresh record lows in Sydney and Melbourne, according to CoreLogic. In Sydney, gross rental yields for houses now sit at just 2.8%, and 3.8% for units. It’s a similar story in Melbourne with houses yielding 2.7% and units 4%. While gross rental yields plumb new lows, investor activity in the Sydney and Melbourne property markets continues to increase and Tim Lawless, head of research at CoreLogic, reckons there’s a simple answer: investors are speculating that house prices will continue to rise.

6. Interest only: Investors have increasingly relied on banks offering interest only loans for up to five years.

Under these loans, the principal remains intact and the borrower only needs to cover the cost of the interest component. That’s fine only for as long as rates remain low and the interest only period remains in place. From as low as a third of all mortgages, interest only loans make up about 40% of home loans, according to data from the banking regulator, the Australian Prudential Regulation Authority.

Strong capital gains drive a surge in the number of million dollar suburbs during 2016

CoreLogic says over the five years to December 2016, the number of suburbs nationally with a median value of at least $1 million has increased by 176%. The gap between property owners and those wanting to buy has never been wider.

There was a time in which having a dwelling worth $1 million or more meant that the property was exclusive and rare.  Today dwellings with a $1 million valuation are becoming much more common.  At the end of 2016, there were 760 suburbs nationally that had a median value of at least $1 million.  This figure has increased from just 275 suburbs nationally five years earlier. Units have been the big mover with the number of $1 million suburbs increasing by 479% over the five years compared to a 160% increase for houses.

No. of suburbs with median value of at least $1 million, by state, Dec -11 vs. Dec-16

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87% of the suburbs nationally that had a median value of at least $1 million were located in either New South Wales (70.3%) or Victoria (16.7%) up from 75.6% in New South Wales (60.4%) and Victoria (15.3%) five years earlier.

The combined capital cities accounted for 93.5% of all the $1 million suburbs in 2011 and this increased marginally to 93.6% in 2016.  This is representative of the higher cost of housing in capital city markets.  It also highlights the relatively weaker value growth performance of regional housing markets throughout recent years.

No. of suburbs with median value of at least $1 million, by capital city, Dec-11 vs. Dec-16

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Escalating dwelling values in Sydney, and to a lesser degree Melbourne, have resulted in an increasing proportion of the suburbs with a median value of at least $1 million over the past five years.  At the end of 2011, 57.8% of the suburbs nationally with a median value of at least $1 million were in Sydney, by the end of 2016 the proportion had risen to 65.4% of suburbs nationally.  The proportion of $1 million suburbs in Melbourne has increased to 16.4% of suburbs nationally at the end of 2016 from 15.3% at the end of 2011.

Further highlighting the rapid increase in values over recent years is the data for suburbs with a median value of at least $2 million.  At the end of 2011, 39 suburbs nationally had a median value of at least $2 million.  By the end of 2016, this figure had risen to 136 suburbs nationally, an increase of 249% over five years.  At the end of 2011, 30 of the 39 suburbs were located in Sydney and by the end of 2016, 115 of the 136 suburbs were located in Sydney.

Nation’s most expensive suburbs based on
median value, December 2016

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While rising housing values increase the asset wealth of owners, it is also reflective of the fact that for those who don’t yet own a home it is becoming increasingly difficult to save a large enough deposit in order to purchase a home.  This is particularly the case in Sydney and Melbourne where over the past five years, dwelling values have increased by a total of 68.1% and 43.3% respectively.  Meanwhile, wages are increasing at their slowest pace on record and housing affordability is once again a central them in the political debate.  The rise in suburbs with a median value of at least $1 million over recent years is reflective of the growing chasm between those that own homes and those who don’t.

Auction Clearance Rates Remain Firm

From CoreLogic.

The auction market will start to gather momentum coming into February after the seasonal slowdown over the holiday period, with auction numbers doubling over the week across the combined capital cities. There were 867 auctions being tracked by CoreLogic this week, with a preliminary clearance rate of 70.8 per cent, compared to last week’s 71.6 per cent across 368 auctions.  Although auction activity has shown a significant uplift over the week across the combined capitals; auction volumes are increasing at a slower rate than what was seen over the corresponding period last year, when 916 auctions were recorded with a similar rate of clearance (70.1 per cent). The lower volumes can be attributed to slower activity across the Sydney market, which was also evident over the same week last year, when volumes were lower over the given period compared to previous years. While the combined capital city clearance rate returned a strong result over the week, as auction numbers continue to gather pace we will get a clearer understanding if auction trends remain as strong as they were at the end of 2016.

The Rise and Rise of Portfolio Investment Property Households

The number of Property Investing households in Australia in rising. Today we look specifically at the fastest growing segment – Portfolio Property Investors.

This sector, though highly leveraged, is enjoying strong returns from property investing, are benefiting from generous tax breaks and many are expecting to purchase more property this year. However, we think there are some potential clouds on the horizon, and that the risks linked to this segment are higher than many believe to be true. Our latest Video Blog post discusses the findings from our research.

The investment property sector is hot at the moment, with around 1.5 million borrowing households now holding investment property and the number of investment loans is the rise. In December according to the RBA, investment loans grew at 0.8%, twice as fast as owner occupied loans, and around 36% of all loans are for investment purposes.

But not all property investors are created equal. Using data from our large scale household surveys, we have looked in detail at those who hold multiple investment properties.

These Portfolio Investors have become a significant force in the market. For example, in November about twenty per cent of transactions were from portfolio investors – or about six thousand transactions. Whilst overall investment loans grew at 0.8%, there was an estimated 4% increase in transactions from Portfolio Investors.

If we plot the overall loan growth trends against the proportion who are Portfolio Investors, we see a that since late 2015, it is these Portfolio Investors who have been driving the market. In addition, more than half of these transactions are in New South Wales, which is the property investor honeypot.

Many Portfolio Investors will have three or four properties, though some have more than twenty and the average is about eight. Some of these households have taken to property investment as a full-time occupation, others see it as their main wealth building strategy.

Property portfolios vary considerably, although we note that there is a tendency to hold a portfolio of lower value property – such as would be suitable for first time buyers, rather than million dollar homes. This is because the rental income is better aligned to the value of the property, and there is more demand from renters, and greater supply.

About half of portfolio investors prefer to buy newly build high-rise apartments, whilst others prefer to purchase a property requiring renovation, because they believe renovation is the key to greater capital appreciation in the long run, even if rental income is foregone near term.

Property Investors are able to get a number of tax breaks, especially if negatively geared. They are able to offset both capital costs by way of adjustments to the capital value on resale and recurring costs, which are offset against income.

Together negative gearing and capital gains makes investment property highly tax effective. There is good information on the ATO site which walks through all the benefits, but in summary you can claim:

In terms of financing, you can also claim:

  • stamp duty charged on the mortgage
  • loan establishment fees
  • title search fees charged by your lender
  • costs (including solicitors’ fees) for preparing and filing mortgage documents
  • mortgage broker fees
  • fees for a valuation required for loan approval
  • lender’s mortgage insurance, which is insurance taken out by the lender and billed to you.

Stamp duty and legal expenses can be claimed as capital expenses.

Given the strong capital appreciation we have seen in property values, especially down the east coast, portfolio investors are less concerned about rental incomes than capital values. Indeed, in recently published research we showed that about half of investment property holders were losing money in cash flow terms – but significantly, portfolio investors were on average doing better.

But these capital gains are now being crystallised by sassy portfolio investors.

If we chart the proportion of portfolio investors who have sold an investment property, to buy another property, it has moved up from 5% in 2012, to 11% in 2016. These transaction means they are able to release net equity for future transactions, and offset capital costs in the process. Once again, portfolio investors in NSW are most likely to churn a property.

Our surveys also show portfolio investors are most likely to transact again in 2017, are most bullish on future home price growth, and will have multiple investment mortgages.

Significantly, many portfolio investors are using equity from one investment property to fund the next, and are reliant on rental income to service the mortgage. They often have multiple mortgages with different lenders. In addition, we found that many portfolio investors are using interest only loans, to keep loan servicing to a minimum and interest charges as high as possible for tax offset purposes.

So long as property prices continue to rise, this highly-leveraged edifice will continue to generate high returns, which are, after tax, better than cash deposits or the share market. Of course the world would change if interest rates started to rise, capital values fell, or the banks clamped down on interest only loans. Overall, we think there are more risks in this sector of the market than are generally recognised.

In addition, we think there is a case to look harder at the tax breaks available to portfolio investors, and suggest that a cap on the number of properties, or value which can be so leverage should be considered. This is because as property values rise, tax-payers end up subsidising portfolio investors more than ever.

So, in summary, our analysis shows the market is being severely distorted, making homes less affordable, and shutting out many owner occupied purchasers who cannot compete. Risks are building, but meantime Property Portfolio Investors are having a field day!

 

 

 

High Auction Clearance Rates Continue

After the summer holidays, auctions are getting back into gear. The preliminary Domain results from today show that clearance rates remain elevated, though volumes are down on the weeks before Christmas.

Sydney achieved 78.8% and Melbourne 78.5%, both higher than last week, and higher than the same week last year. The national clearance rate was 72.6%.

Brisbane achieved 55% on 77 listings, Adelaide 58% on 91 auctions and Canberra 67% on 49 auctions.

The signs are that the property market momentum is being maintained.

Sensible reform to finance affordable housing deserves cross-party support

From The Conversation.

Treasurer Scott Morrison’s visit to cold old London last week in the middle of the Australia summer was time well spent. Morrison made time in his hectic schedule for a lengthy meeting with the UK’s Housing Finance Corporation (THFC) to discuss an affordable housing financial intermediary with its chief executive, Piers Williamson.

Founded in 1987 to make up for the shortfall in public funding, THFC is a finance aggregator and intermediary that co-funds affordable housing for rent and ownership. And Williamson is no stranger to Australia’s housing problems. He has been a source of advice and advocate for policy reform in various Australian industry and government forums. He also has the ear of our largest superannuation funds.

And, much like Australia, the UK has a serious problem with housing affordability and supply, made worse by policy and market settings that fuel instability rental housing. In this context, channelling investment via a specialist financial intermediary towards newaffordable housing provided by landlords with a social purpose makes good sense.

The idea just needs an effective champion in Australia. In fact, it needs a bipartisan team of champions.

How does this financing model work?

Long identified as a glaring gap in Australia’s affordable housing system, bonds issued via a specialist intermediary would steer investment to where it is sorely needed. If combined with appropriate incentives and public programs, it would go a very long way towards producing more affordable housing choices, as in the UK.

International research found the UK’s Housing Finance Corporation to be one of the world’s leading examples of good practice. It funds not only affordable housing but also ensures that investment flows towards registered landlords meeting real accommodation needs.

Researchers have adapted this model in proposals for an Australian Affordable Housing Finance Corporation. Combined with a well-designed guarantee and revolving capital loans program, it’s a feasible approach, as a New South Wales government-funded study found in 2016.

In the UK, THFC combines the borrowing demands from small social landlords with committed public assistance to source the most favourable financing terms available from capital markets. With a guarantee, these enabled housing associations to borrow at a cheaper rate than the UK government.

THFC acts as the landlords’ principal. It issues mortgage bonds on their behalf, raising and passing on funds at a lower cost than would be individually possible.

Public funds on both the supply and demand side are also an important part of the equation. The NSW feasibility study makes it clear that a stable government co-investment strategy is required to ensure affordable supply.

Such a strategy was well established in the UK. But in recent years it has become less generous and stable, which has affected both supply and affordability. The UK experience demonstrates that the greater the share of public investment and stability of revenue settings, the lower the cost of private finance and the more affordable dwellings can be.

Over the past 30 years, THFC co-financed more than 2.4 million dwellings through well-regulated landlords with a commitment to secure affordable housing. These registered social landlords allocate dwellings on the basis of need rather than to the highest bidder. Renting affordable homes to those who need them is their business focus, not capital gains.

These landlords are well regulated for this purpose. In return, they have access to favourable public loans, tax incentives and direct revenue support via the UK’s Housing Benefit.

With detailed knowledge of providing sustainable social housing, THFC is able to assess the financing needs and credit risks of the housing assistance sector. Large institutional investors have little time for this. THFC’s hands-on scrutiny has ensured a zero-default record and stable A credit rating from Standard and Poor’s.

When an intermediary like THFC is combined with a government guarantee it can be even more effective in reducing perceived risks and thus financing costs, as our international research shows. Since 1991, the Swiss government helped to build, then backed, a thriving bond-issuing co-operative. This created a new market for bonds and drove down mortgage interest rates for affordable rental housing.

The UK’s Affordable Housing Guarantee delivered A$4.15 billion at or below the rate of government bonds in its three-year existence. The not-for-profit Housing Finance Corporation was licensed to manage this scheme. With the UK Treasury guarantee, it was able to obtain and pass through funds from the European Investment Bank below government gilts.

What conditions are needed for success?

The longest-term and lowest-cost investment flows to where the risks are known and predictable. In the UK, these risks have been reduced by four key conditions:

  • On the revenue side, rents have been underpinned by adequate levels of assistance for those who need it.
  • Landlords are registered and regulated in England and Scotland to ensure they are not only financially sound but also socially responsible and thus eligible for government support and tax incentives.
  • On the supply side, government funding instruments provides subordinated loans, guarantees and equity.
  • Planning mechanisms provided well-located land for affordable housing development.

These conditions have been in place throughout successive governments, Conservative and Labour. More recently, the emphasis has shifted from social rental dwellings towards affordable home ownership.

The situation in Australia is different. The small community housing sector offers long-term tenancies and shared-ownership housing in a supportive context. However, the sector needs a more sustainable business model to grow.

Current policy settings affecting supply (capital investment, planning provisions) and rent assistance are too weak and uncertain. This can change; it’s all a matter for policy reform. Other countries have moved ahead and Australia needs to catch up.

With an intermediary and appropriate government support behind them, Australian community housing organisations will have the potential to grow, as they have in the UK, US, Switzerland and Austria.

By now Morrison and his team should be well informed, having spoken to the UK experts, boned up on international evidence and consulted Australian industry.

Following the recommendations of the Senate inquiry into affordable housing and Treasury’s own Affordable Housing Working Group, sensible policy reforms such as these are likely to attract cross-party support. They not only draw on proven best practice elsewhere but can be adapted to Australian market conditions and growing needs.

Author: Julie Lawson, Honorary Associate Professor, RMIT University

Building Approvals Past Peak – HIA

The December 2016 update for ABS Building Approvals confirms we are well passed the peak for the cycle, said the Housing Industry Association.

In December 2016 total seasonally adjusted building approvals fell by 1.2 per cent with detached houses down by 2.2 per cent and ‘other dwellings’ sitting flat at +0.1 per cent. On a three month annualised basis total approvals remain above the 200,000 threshold at 204,692.

In December 2016, seasonally-adjusted building approvals increased by 19.5 per cent in Tasmania and 17.0 per cent in Victoria, while in trend terms there was an increase of 1.2 per cent in the Northern Territory. Building approvals fell in Western Australia (-16.3 per cent), New South Wales (-13.2 per cent), South Australia (-5.4 per cent), and Queensland (-0.1 per cent). In trend terms approvals fell by 2.1 per cent in the Australian Capital Territory.

“While a downward trend in building approvals is firmly entrenched, residential construction activity itself will hold up well throughout 2016/17,” said HIA Chief Economist, Dr Harley Dale. “From 2017/18 we will see a sharper decline in new home building activity, primarily due to the medium/high density segment of the market.”

“Building approvals peaked in July 2016, but by December last year were only 18 per cent lower than that peak. Given approvals reached an all-time high last year that’s a modest fall – we can take that away and bank it as a good outcome for the Australian economy.”

“This has been an extraordinary cycle for new home building – the biggest and longest in history. A long tail to the cycle will be helpful for the Australian economy.”

“It is important to focus in 2017 on ensuring Australia has the correct longer term policy settings to ensure we adequately house our growing and ageing population. The recent appointment of Michael Sukkar as Assistant Minister to the Treasurer, with a focus on housing affordability allows the Federal Government to lead from the front in meeting this crucial national objective.”