New homes will be built but it’ll take a lot longer
Peak body says 'tax rules may distinguish between new and established homes. The housing market does not'.
DESPITE changes to housing taxation and investment settings, new homes will continue to be built, albeit at a slower pace, according to the Housing Industry Association.
The HIA recently released its Economic and Industry Outlook report, which included updated forecasts for new home building and renovations activity.
“As outlined in the Federal Budget, increased taxes on established housing will reduce the supply of new homes, while the subsequent prohibition on SMSFs borrowing to invest in residential property will remove another source of new home finance,” HIA chief economist Tim Reardon said.
“These policies have interrupted an expansion in home building that was already underway.
“They will not necessarily cause commencements to fall across Australia.
“The effect is that Australia will build fewer homes than it otherwise would have. We anticipate that over the Housing Accord period, Australia will fall 186,000 homes short of the 1.2 million homes target.”
Reardon said population continues to grow, households continue to form at a rate faster than supply of new homes and Australia already has a significant shortage of homes.
“HIA expects these structural forces to increasingly dominate the housing cycle and result in a return to positive home price growth from early 2027,” Reardon said.
“The increase in commencements should not, however, be interpreted as evidence that Australia’s housing shortage is being resolved.
“Rather, it is the shortage itself that will eventually generate the market conditions required to support more construction.
“There is a fundamental difference between reducing the price of an established home and reducing the cost of delivering a new one.
“The established and new home markets are not separate markets.”
Reardon said if taxation reduces what investors are prepared to pay for an established home, it also affects what they are prepared to pay for a comparable new home.
“This is why permitting negative gearing for newly constructed homes does not quarantine new housing from the impact of higher taxation on established housing,” he added.
“The tax rules may distinguish between new and established homes. The housing market does not.
“When established home prices fall but the cost of land, labour, materials, infrastructure, finance and regulation does not, fewer new housing projects are financially viable.
“Lower established home prices can therefore improve affordability for some households today while simultaneously reducing the supply of housing required to improve affordability tomorrow.
“A risk to the forecast was that uncertainty created by recent policy changes persists for longer than expected due to economic or political uncertainty. This would see a greater decline in new home building.”
