Providing enough new home supply in the country may be more difficult, as industry group Master Builders Australia revealed that residential building activity declined over the September quarter.

 The Activity Index dropped to 55 points during the quarter, compared with 59.8 points in the preceding three-month period.

“The latest National Survey of Building and Construction shows that residential building activity has entered more challenging waters,” said Master Builders Australia’s Chief Economist Shane Garrett.

Adding to this dilemma is the drop in optimism in the residential building sector, with the Survey’s Expectations Index tracking lower by 1.9% during the September 2018 quarter. Aside from implying that industry players expect further downturn over the coming six months, this might also affect the market behaviour. 

Failure to consistently deliver enough new homes to meet demand had led to house values steadily surpassing wages and incomes over many decades.

Garrett said that new home building is likely to drop over the next few years given that tighter finance availability and cooling house prices in Sydney and Melbourne are weighing down the residential building.

As a plan of action,  any new policy need to ensure that adequate new homes can build so as to accommodate a growing economy and a larger workforce

“Newly-released modelling from Cadence Economics confirms that proposed restrictions on negative gearing and [Capital Gains Tax] would result in up to 42,000 fewer new homes being built over a five-year period – enough to house over 100,000 ordinary Australians,” Garrett explained.

As such, one thing is certain: residential building is already weakening, and efforts to not further dampen the sector should be made.