Stimulus Package Has Kept Housing Sector Afloat But Uncertainties Loom

A builder works on a house under construction in a file photo. (Ian Waldie/Getty Images)

The effect of the stimulus measures targeting the Australian housing industry is emerging latest official statistics reveal.

August housing finance figures released on Oct. 9 recorded a sharp monthly rise of 12.6 percent, with both owner-occupiers and investors making up the majority of those seeking finance for the third consecutive month, following historically large falls in May.

The continuation of the upward momentum, led by the lending for construction and new home purchase, points to the immediate boost of the Homebuilder scheme delivered in June. It has also been facilitated by a historic low-interest-rate environment.

The latest data by the Australian Bureau of Statistics (ABS)  show the value of owner-occupier home loan commitment posted a record monthly increase, hitting the peak in the history of the series at $16.3 billion.

“August’s 13.6 per cent increase in the value of owner-occupier home loan commitments is the largest month-on-month rise in the history of the series, eclipsing the previous record of 10.7 per cent set in July,” said ABS head of Finance and Wealth, Amanda Seneviratne in a statement.

However, she noted that the August figures reflect only customer demand in June and early July due to delay in lender processing times. This means the statistics show no impact from Victoria’s stage 3 and stage 4 restrictions which had just started.

The number of loans to first home buyers also recorded a significant growth, with loan value rising by 17.7 percent to reach the highest level since October 2009.

Tim Reardon, chief economist for Housing Industry Association (HIA), the peak body of the nation’s home building industry, attributed the surge in the first home buyers to various government incentives including HomeBuilder, the First Home Loan Deposit Scheme and discounts and exemptions on stamp duty, as well as a low-interest-rate environment.

“There has been a substantial improvement in sentiment and confidence in the housing market,” he said in a statement on Oct 9 in response to the ABS figures. “It is evident in today’s data that there will be an increase in work on the ground in the December quarter this year which will protect jobs in the construction industry and the broader economy.”

Uncertainties Ahead

Despite the encouraging uptick in statistics, uncertainties are surrounding the housing finance sector as well as the housing industry due to the variation in policy response at the state level.

Westpac economist Matthew Hassan said that Australia would see the impact on lending from Melbourne’s lockdown in next month’s figures.

“For finance approvals, the picture is further complicated both by what are set to be widening state variations and uncertainty around the lags between application and approval,” he warned in a note on Oct 9.

Property Council of Australia chief executive, Ken Morrison also raised concerns over the looming expiration of Homebuilder scheme on  Dec 31.

Praising the scheme as a “the pop star” that is “ highly effective, immediate and good value for money”, Morrison said there was still a long way to go before property industry sentiment returned to its pre-COVID levels.

“The challenge will be maintaining this momentum beyond December when the current scheme expires, and we are looking at a huge drop in population growth due to closed borders,” Morrison said in a recent statement.

“As household income supports such as JobSeeker and JobKeeper are wound back over the next few months, all levels of government will need to step in with incentives that will deliver fast and effective stimulus to build momentum for recovery.”

In its bi-annual Financial Stability Review released on Oct 9, the Reserve Bank of Australia warned that rising levels of financial stress would increase the risk of home loan defaults.

Despite the acknowledgement that  Australian households' finances have been cushioned from the impact of the pandemic by support measures, the central bank said that if the unemployment rate hits 10 percent, it will double the rate of housing arrears.

“While credit is available at very low-interest rates, reduced housing demand from very low immigration and the rise in unemployment contribute to the risk of further falls in housing prices,” the report stated. “This increases the potential for losses for lenders in the event of a rise in distressed sales.”