Tight credit conditions and significant tax and regulatory burdens are hindering new home construction, according to the Housing Industry Association (HIA).
Dr Harley Dale, HIA chief economist, told Real Estate Business' sister title The Adviser that the availability of financing for residential development is lower now than before the global financial crisis (GFC).
“If you’re a small or medium-sized residential developer or builder, it’s substantially more difficult to get projects financed now than it was a few years ago,” he said.
“Part of that is just a general lack of appetite to lend to residential property on the development side relative to the appetite banks used to have, and wrapped up in that is there are more onerous conditions in and around pre-sale requirements and demonstrated ability to sell the project.”
According to Dr Dale, a loosening of credit conditions would assist in new housing development.
“An easing in credit conditions on the supply side of housing equations would assist a stronger recovery,” he said.
Dr Dale also noted the tax and regulatory environment for residential development is currently a burdensome one.
“We've had independent research done that confirms that new housing is the second most heavily taxed sector in the Australian economy,” he said.
“The industry faces everything, from excessive infrastructure charges to the costs of avoidable planning delays to cascading stamp duties at different points of the development process, all the way along to the fact that since 2000, GST has been levied on new housing but ... not on existing properties. So there is an inherent cost bias there as well.”
Acknowledging that reform in this area is difficult, Dr Dale said it is still an issue than must be looked at to ensure a sustained market recovery.
“These are difficult problems to address and we acknowledge that. But the fact is that the regulatory and taxation cost base is very high on new housing and that provides a real element of constraint,” he said.
HIA estimates that by 2050, Australians will need to have 180,000 new homes built every year as an absolute minimum to satisfy increasing demand.
“It is fair to say that based on current policy settings that target looks highly unachievable,” Dr Dale said.