The Government could be pressured into providing assistance to the housing market if building approvals continue to fall and the European debt crisis has a negative effect on lending, experts have warned.
The comments come after official statistics released yesterday showed building approvals fell by nearly 30% in the year to October, as the construction industry continues to suffer under a distinct lack of demand.
“We were expecting a decline because that lined up with the widespread anecdotal evidence we heard through the months leading up to October – but we weren’t in any way prepared for the magnitude of the decline,” Housing Industry Association economist Harley Dale told SmartCompany this morning.
The pressure on the industry has caused several SMEs to collapse. Official insolvency statistics show construction and retail are the two industries suffering the most instances of administration and receivership.
Dale says yesterday’s figures are discouraging on their own, but he also says the fact detached houses fell “quite significantly” in addition to multi-units is alarming.
“What this means is that if this is the level of housing starts being implied, then we’re back down to the levels we saw during the GFC.”
Although world leaders have been working diligently to solve the European debt crisis, Dale points out if any weakness makes its way to home lending markets, the Government could be pressured into providing assistance for home owners just as it did after the financial crisis in 2008.
“It’s very clear from our experience than in the GFC, providing stimulus provides not only a large positive effect, but has a multiple impact on the industry.”
“If there is further deterioration in the European situation, then the case for stimulating the new housing sector could gather legs very quickly.”
The negative results from yesterday highlight a disappointing forecast for 2012, Dale says, with construction also expected to be weaker in the next few months before a slow 12 months.
“We’re seeing a renewed weakness in housing from this starting point that was fairly weak to begin with, so that doesn’t bode well for actual construction activity. We’re going to be seeing quite soft new home building conditions.”
“Obviously that has some concerning implications for the employment market.”
Dale says the forecast for the current financial year would see housing starts reach a level of 140,000.
“Unfortunately, that seems to be where we’re at.”
“This sort of fall, being down 8-10% from the previous financial year, looks like it will be the case.”
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
