Housing Industry Association’s (HIA) State and National Outlook Reports showed that the unanticipated tight squeeze on credit for home buyers is causing further slowdown in building activity.

Tim Reardon, principal economist at HIA, said that the credit squeeze has been hurting investors over the past year and a half. Limitations set by the Australian Prudential Regulation Authority have also become an impediment for buyers.

“APRA’s restrictions were designed to curb high risk lending practices but we are now seeing ordinary home buyers experience delays and constraints in accessing finance,” said Reardon.

This disruption in the lending market is expected to affect the number of residential building works entering the pipeline. The impact on actual building activity will be seen in the first half of 2019.

The year 2017-2018 posted more than 120,000 detached house starts, making the period one of the strongest on record. Home starts are forecasted to decrease by 11.4% this year and then by a further 7.4% next year.

Reardon warned that that situation can worsen. “If these disruptions to the home lending environment prove to be long lasting, then we could see building activity retreat from the recent highs more rapidly than we currently expect.”

Recent numbers support his claim, with the decline in housing finance data showing that the lending environment has changed. Lending to owner-occupiers constructing or purchasing new homes dropped by 3.6% in September and is down by 16.5% over the year.

Reardon said that it is essential that banks keep their lending practices stable given that Hayne Royal Commission’s findings are about to be disclosed.

“With the prospect for the release of the Hayne Royal Commission’s findings to trigger further upheaval in the banking system, we need the banks maintain stable lending practices for fear of a destabilising influence on the housing market.”