Housing construction hits 10-year low

The housing sector cops another blow, with news that construction of new homes slumped by 1.9% in the June quarter, to its lowest level in 10 years. New residential housing fell 2.5%, while alterations and additions (renovations) were down 2.3%.

The Housing Industry Association (HIA) has again called for more help from state and federal governments, saying the sector was faring worse now than during the GFC. In July the HIA held an industry meeting at Parliament House in Canberra, to highlight the plight of the sector.

Boral Limited (ASX: BLD) chief Ross Batstone recently said that conditions in the building and construction sector were the worst he had seen in 20 years. Interest rate cuts last year and earlier this year don’t appear to flowing through to the industry, although economists expect conditions to improve in the next six months. For Australian building companies and housing product suppliers, including Boral, CSR Limited (ASX: CSR), Alesco Corporation Limited (ASX: ALS) and GWA International Limited (ASX: GWA), this is bad news.

A report by lobby group, Australians for Affordable Housing says that our housing system is broken, and young couples are being forced to choose between having kids or buying a home, with 41% of household income spent on housing. Another report by US private equity firm, Variant Perception, confirms that view, suggesting there is a housing bubble in Australia. The good news, for some, is that the bubble is deflating, making house prices cheaper, but it appears to be deflating slowly, and may not offer some relief to the sector for some time.

The Foolish bottom line

A recovery in the sector may be some way off, and may come too late for some companies. The current malaise may also prompt the RBA to cut interest rates further. We’ll know soon enough with the RBA set to meet next Tuesday.

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Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned. The Motley Fool’s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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