Australian residential building approvals had increased during November by 8.4 per cent to 11,424 units.

This compared with an upwardly revised 10,539 units in October, seasonally adjusted.

Economists expectations of this figure were closer to 6.0 per cent.

Unfortunately, while November was a reasonable month, overall domestic construction is still trending down.

There have been some strong declines in September and October and while future interest rate declines should have a positive impact on this, we have not quite seen it as yet.

The RBA had already reduced the cash rate twice at the end of last year, to 4.25 per cent. This has also had a positive impact in the market in demand for home loans.

In the year to November, building approvals were down 18.9 per cent, the ABS said.

But a number of factors needed to be taken into consideration and a another downward trend in equity markets could throw a recovery off course.

The latest HIA – JELD-WEN New Home Sales Report found the number of new homes sold in the month of October 2011 increased by 5.5 per cent, although sales remained down by 8.0 per cent over the quarter to October.

A lift in demand for new home sales, no matter how small is positive news for the Australian Construction industry.

“The recent drop in the cost of fixed rate home loans as well as decline in variable rates, in conjunction with a competitive building market, and a greater availability of skilled trades makes now one of the best times in history to build a new home.

Despite the quarterly increase, we are still in a very week property market.  In October 2011 the volume of detached house sales was 29 per cent below the average of the last fifteen years.  Many first home buyers and investors are choosing to purchase off the plan apartments rather than house and land packages. These allow the purchase the flexibility of having a property close to the CBD which provides a desired lifestyle and is easier to rent.

“There is a compelling case for another, larger interest rate cut next week, while any logic behind achieving a swift return to budget surplus in 2012/13 is spurious given current global economic conditions.” It is not clear whether lenders will choose to pass the full interest rate deduction to holders of home loans, as their own cost of funding is increasing due to debt problems in Europe and the US.

Detached house sales increased by 5.1 per cent in October 2011 following a 3.3 per cent decline in September. Sales of multi-units rose by 9.0 per cent in October following a 5.5 per cent dip in September.

Construction work in chain volume terms, seasonally adjusted, was valued at $47.467 billion in the September quarter, compared with $42.191bn in the June quarter, the ABS said today.

The median market forecast was for total construction work done to have risen 2 per cent in the September quarter.

The ABS said total building work done in the September quarter was $19.414bn, seasonally adjusted, from $19.303bn in the June quarter.

Engineering work done was up to $28.053bn in the September quarter, from $22.888bn in June.
This is not necessarily housing or residential construction. It seems that non-residential building bounced from the lowest level in two years, but residential construction has actually fallen away. Nonetheless statistics suggest that the demand for commercial business loans and personal loans is also on the increase, while home loans are falling out of favour.

For the Reserve Bank the data indicates a very strong increase for capex for third quarter GDP and shows that the investment boom is driving growth in the face of increasing uncertainty from European sovereign debt concerns.

On a state-by-state basis, WA rose, NSW rebounded, Victoria bounced Queensland was flat and South Australia dropped.

RP Data’s Property Pulse has reported that housing stock is piling up, with 7.4 months of effective supply on the market.

Research analyst Cameron Kusher said that while the number of property sales remain around the same level as last year, there are a larger number of properties on the market and this larger number is not matched by the number of property buyers.

“A spike in recent property listings data acquired by RP Data suggests that available stock is at near-to record levels and is being driven by unsold properties re-listed while new properties continue to enter the market. This result is indicative of slower market conditions and longer than normal selling periods,” Kusher said.

Kusher suggested that housing stock levels may have reached peak levels in some capital cities, though housing stock continued to grow in Melbourne and Adelaide. He said that, while he expects the recent RBA rate cut to see increase in demand fro quality properties and potential better sales volumes.

“My reasoning behind this is because while demand for home loans is fairly flat, consumers show low levels of optimism when it comes to property purchases and retail trade continues to be slow, at a macro level the property market is likely to be subdued until we see a significant reduction in the number of homes for sale,” Kusher said.

Once rates start moving down more and demand for home loans improves, so should property sales.

Australians for Affordable Housing (AAH) – which is made up of 60 community and housing groups – launched the report today as part of a push to provide more affordable housing for Australians.

“Australian households are paying more than they can afford for housing, with over 740,000 renters and more than 380,000 home owners with hefty home loans suffering from significant financial stress,” spokeswoman Sarah Toohey said.

In Sydney, it takes 8.1 times the average annual income to afford the median house, up from 5.6 times in 2001, according to the report.

The group is concerned that increased property prices will see first-time buyers to stay in the rental market for longer, competing for properties and pushing up rental prices. Since 2005, rents in Australian cities have risen at twice the rate of inflation, according to the report.

It should be noted that while government was talking up interest rates and banks are making it very difficult for developers to access construction loans – demand will exceed supply in the premium areas of Australian capital cities including Melbourne and Sydney.

The report also found that 50 per cent of low-income home owners are having a hard time keeping their heads above water with many behind in their home loans.

“The NSW housing system is failing too many people. We need the NSW Government to commit to working with federal and local governments to solve this crisis.”

Last week, the NSW Government was called on to implement an emergency housing plan after figures showed new-home starts had plummeted.

The 20.1 per cent fall, which was worse than the 16.3 per cent recorded by flood-hit Queensland, prompted calls from the Urban Taskforce for an emergency housing supply plan by Christmas.

“NSW’s housing supply is clearly in dire trouble,” said the organisation’s chief Aaron Gadiel.

The Australian reports that according to documents they were able to access at least 61 projects across Australia have been tagged as having retail or commercial areas that are “unacceptable” when it comes to meeting criteria for an investment loan.

The documents were made available to mortgage brokers pinpoint close to 1400 existing and future developments nationwide where the bank will offer home loans only up to 80% LVR.

A large number of these of developments included on the list appear to have caught the bank’s attention as they have apartment sizes of less than 50sq m.

This is not a new situation as banks have been averse to providing home loans for the purchase of small city apartments for quite some years.

Of the 61 developments with retail components that are on the list as being deemed unacceptable for loans, 15 are in NSW and the ACT, 17 are in Melbourne, another 17 in Brisbane, seven in Western Australia, four in South Australia and one in the Northern Territory.

In Melbourne, notable developers with developments on the list include Pan Urban, which has two projects on the list in the Docklands, and MAB Corporation, which has five buildings in New Quay.

In Sydney, the largest developments to appear on the list as having retail or office components that are “unacceptable” for home loans include a Meriton building and a Winten Property Group building.

The retail components of a Citimark project in Brisbane, and Southport Central on the Gold Coast, which was developed by the failed Raptis Group, among other smaller developments, caught the attention of the bank.

All of the listed projects have already been completed and are no longer held by the developer but by institutional or retail investors.

This situation may well worry foreign investors who have poured more than $20 billion into the market every year since 2004, on average, according to data from Australia’s Foreign Investment Review Board.

While many overseas investors are still optimistic one can well ask the question of how long this will last?

“That said, at this point, it has to feel like a long-term investment.”

The combined average price of homes and apartments in Australia’s capital cities is off 2 per cent from a year ago and 2.7 per cent this year, checking in at $462,500, according to property research firm RP Data-Rismark. This comes as Australia’s economy starts to cool, with the central bank recently downgrading its average growth forecast for the year to 2 per cent from 3.25 per cent.

Home Loans in arrears by 30 days or more reached an all-time high in the first quarter of 1.8 per cent, according to ratings firm Fitch Ratings. However, that level is still well under  the home loan arrears experienced by the US, which saw 8.4 per cent in the June quarter, according to the US Mortgage Bankers Association.

According to the Australian Bureau of Statistics, new-home construction in Australia has jumped 26 per cent in just the last year, as of June, to about 165,549 units, and is up 10 per cent from 2006. A large part of this increase comes from Victoria, where home construction is up 40 per cent since 2006 at 54,476 units last year in the state capital, Melbourne, Australia’s second-largest city.

About 10 per cent of the 120,000 new homes approved for construction by city governments in Australia in the past year were apartments in Melbourne, according to city administrators and the bureau of statistics.

Home and apartment prices in Melbourne are down 3.9 per cent this year to $485,000. In the Western Australian capital of Perth, prices are down 2.4 per cent to $461,000, according to RP Data-Rismark. Sydney has side-stepped some of the weakness, up 0.5 per cent over the past 12 months, but still off 1.3 per cent since the start of this year to $515,000.

So far, Australia’s big four banks – ANZ, Commonwealth Bank of Australia, Westpac and National Australia Bank – appear to be weathering the turn, though scrutiny could increase if the market worsens. The four hold more than $850 billion, or more than 80 per cent, of Australia’s home loans, though Fitch estimated last year that they could withstand a price drop of up to 40 per cent.

“The big question is where does unemployment go, that’s when you get the forced selling,” said Ivan Colhoun, head of Australian economics and property research at ANZ, who finds solace in Australia’s still-low 5.1 per cent unemployment rate.

Locally, buyers have already started to wane. In the last year, there were 90,210 first-home buyers across Australia, 35 per cent lower than the previous year and a seven-year low, according to BankWest, a Western Australia-based lender and unit of Commonwealth Bank.

Mr Donnelly, whose firm has sold residential property in Australia worth more than $1.2bn to mostly overseas investors, says the market in Sydney and Brisbane could sidestep some of the weakness, largely because both fell behind in the recent development push.

Brisbane has also been weak, with prices off more than 6 per cent this year, but much of the drop stems from the devastation to the capital of Queensland state earlier in the year from a series of floods.

ABS is reporting that median house prices across all Australian capital cities declined by 1.9% in the year to the June quarter.

Perth and Brisbane experienced the largest year-on-year decline, falling 4.1% and 3.6% respectively. Hobart and Canberra were the only capitals to see year-on-year improvement.

New building approvals fell 3.5% in June, following on a 6.3% decline in May. If this trend continues, there will be serious repercussions across every sector of the Australian economy.

According to the Australian, energy efficient homes will be costing more as the Carbon tax will also affect the price of double-glazing as well as insulation materials.

The Master Builders Association expects at least $5000 to be added to the cost of building the average residential home, currently about $300,000.

“There’s so many products that go into making a house, it’s logical that a tax of this nature is going to have an impact on the sector,” said MBA chief economist Peter Jones.

Projections by the Master Builders Association indicate that the cost of metals — from aluminium windows to structural steel to Colorbond roofs — will go up by between 2 and 4 per cent.

Mineral-based products such as concrete and bricks will experience a price rise of 3 per cent on average, and timber will rise by 1.5 per cent.

“Insulation prices are also expected to go up,” Mr Jones said.

The inflationary impact on the carbon tax on overall prices may result in the RBA increasing the current cash rate sooner rather than later – further slugging home owners through higher costs of home loans.

Appropriate tenants are being sought for the 75-apartmetn development, in South Road, near the Nepean Highway, that should be ready next month. The one- and two-bedroom units all have their own private open space.

The $23.5 million project is jointly funded by the Port Phillip Housing Association and the Federal Government. To be eligible, prospective tenants must be aged over 18 and low to moderate incomes (as wages, Centrelink payments or some other form of fixed income), who can live independently.

Rent will be based on a percentage of household income or a reduce market rent. The association’s operations manager, Tanya Armstrong, said it was evident there was a shortage of social housing Kingston. “Many of the tenants will already be living or working in the local community,” she said.