Demand for Housing Falls Considerably: But Why?

11th Nov, 2022 | Articles, First Home Buyer, In The News, Investor

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According to recent data, both new housing starts and approvals are down significantly from where they were just a few years ago.

The Reserve Bank of Australia (RBA) in it’s November update on its Monetary Policy stated: “Demand for new detached housing has fallen considerably since the start of the year, due to rising interest rates, higher prices for land and construction alongside falling established home prices, and poor buyer sentiment arising from construction delays.”

Mark Bouris joined Sky News to discuss these pressing issues that both vendors and buyers are having to deal with.

Demand decrease “not surprising”

When asked about the RBA’s statement, Bouris said that it is “not surprising given that the cost of building, for example, is extremely expensive.”

He added that with the current state of the construction industry, the time it takes to get things built can be extremely frustrating for borrowers.  

Compounding this is the fact that, “new housing approvals are right down relative to where they had been in previous periods,” said Bouris.

The strains currently placed on the construction industry are well known, with the RBA highlighting that “many builders and developers [are] reporting a substantial pipeline of construction activity still to be worked through. Challenges to obtaining tradespeople in a timely fashion persist and contacts noted that availability of labour remains a significant constraint on the ability to get work done.”

However Bouris pointed out that from “an economic point of view, that’s in some ways sort of encouraging.”

He said, “We know that the construction industry as a whole has enough work on foot at the moment to take them through the next 12 to 18 months, as opposed to new approvals. 

“That means there’ll be a lot of people making a lot of money as tradespeople. Largely, one of the reasons why they still have plenty of work on, irrespective of there being very few new approvals, is the time it has taken to get materials and tradespeople to work for builders, for example. 

“So it’s a bit of a ‘catch 22’ situation, but this should all wash out over the next 12 months and at the end of 12 months, that’s the question we need answered.”

 “At the end of the next 12 to 18 months and all this construction, then where-to for the tradespeople and the builders? If there are very few new approvals going on, because there’s a lag time between making a decision to borrow money to build a new house or borrow money to do a renovation, what will happen to all of this economic activity in the construction industry?”

Bouris added he is concerned about this “lag period” and fears that there will be a decline in construction activity, which will have negative impacts on the economy.

What should borrowers expect over the coming months?

Bouris also spoke on Sky News to express that he is “very worried” about the RBA’s continual rate rises and the impact they will have on mortgage holders and those looking to break into the property market.

Learn how much you can save through refinancing.

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