New home approvals slumped to their lowest level in five years, according to recent data from the Australia Bureau of Statistics (ABS).

Approvals fell by 9.1 per cent in November last year to reach their lowest level since August 2013.

ABS data shows that a total of 15,465 homes were approved for construction in the month of November 2018. 

“The monthly decline in total approvals was driven by multi-unit homes, which fell by 18.4 per cent, while detached house approvals declined by a more modest 2.3 per cent,” Diwa Hopkins, Housing Industry Association (HIA) economist commented.

Ms Hopkins told WILLIAMS MEDIA the weak result shows just how much the current credit squeeze is weighing on the homebuilding sector.

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“The credit squeeze is happening at the behest of the banks’ own lending practices which have been tightened above and beyond APRA’s requirements," she said.

Research conducted by HIA found the time taken to gain approval for a loan to build a home has blown out from the original two weeks to more than two months.

Tim Reardon, HIA Principal Economist told WILLIAMS MEDIA he's heard that almost half of all loan applications being rejected.

“APRA’s announcement sends an important message about the overall health and stability of the mortgage market which should be heeded by policymakers and lenders alike.

“With the Royal Commission scheduled to release recommendations early next year, there is a risk that the credit squeeze may drag on into 2019. The residential construction sector is already cooling. Policy makers will need to proceed cautiously when responding to the Commission’s recommendations,” Mr Reardon said.

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Ms Hopkins says more needs to be done.

“APRA’s decision late last year to lift its 30 per cent cap on banks’ interest-only lending is a welcome development, but more needs to be done to mitigate the growing risks of a hard-landing in the housing market. 

“Policymakers and lenders alike need to be cognizant that ordinary home buyers are now facing blowouts in loan processing times and also much greater rates of flat-out loan rejection. Today’s results show how this is weighing substantially on the new home building sector. 

“We’ve long been anticipating the current downturn in new home building, but there is a risk it could develop more quickly and strongly than expected. 

“In particular policymakers and lenders will need to respond judiciously to the pending release of the Banking Royal Commission’s recommendations,” said Ms Hopkins. 

Unless something changes, Ms Hopkins says the economy will be at risk.

“A downturn in new home building has long been anticipated. The current credit squeeze, however, risks the pace and magnitude of the decline developing into something faster and greater than expected. This would result in a greater drag on the wider economy,” she told WILLIAMS MEDIA.

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