New home sales fall 8.7%, industry calls for tax reform at October summit

New home sales fell 8.7% in June to their lowest level since last September, according to the latest data from the Housing Industry Association, which warns that the industry is at risk if the Reserve Bank decides to raise interest rates tomorrow.

New home sales suffered their heaviest monthly decline in five years in June 2011, providing further evidence of the need to keep interest rates on hold, said the Housing Industry Association, the voice of Australia’s residential building industry.

The latest HIA - JELD-WEN New Home Sales Report, a survey of Australia’s major residential builders, showed that the number of new homes sold in June 2011 dropped by 8.7 per cent, the sharpest monthly decline since May 2006.

The data comes as the auctions market has once again delivered a less-than-impressive result, even with unseasonably warm weather in Melbourne.

HIA chief economist Harley Dale says the result is weak, and that anecdotal evidence suggests that interest and demand for new housing has "hit a wall".

"This piece of empirical evidence supports the anecdotes we've been hearing."

Dale says the industry needs an extended period of steady interest rates in order for building to take off, but that won't occur if the RBA raises interest rates tomorrow, or even during the rest of the year, he warns.

"We've had a forecast for a long time this year that building would be significantly weaker than we saw in 2010, and as I've said before, higher interest rates are just going to add to the risk that it becomes lower than what we're already forecasting."

"What you ideally need is a sustained period of steady interest rates... but that particular outcome looks unlikely because regardless of whether the Reserve Bank hits the button tomorrow, we've got considerable amounts of uncertainty over interest rates."

Dale says the HIA has received an invitation to the tax summit in October, and a representative from the organisation will be attending. He hopes that some sort of benefit for the industry can be achieved, saying that stimulus is needed in order to improve home building levels across the country.

"Are there some stimulus measures the Government could be considering, in the form of boosting new homes, or perhaps looking at accelerated depreciation for rental investment? Should the Government be considering options to reduce risk?"

The calls for stimulus come as a number of companies in the building and construction industry have collapsed, citing poor trading conditions as a major factor.

Dale says this type of support is extremely important, as the evidence suggests that sentiment for housing is dropping, even though interest rates have remained steady since last November.

"The situation for new home building reinforces the importance of getting tangible outcomes from the tax forum in early October. You have a situation where new housing is very heavily taxed, and we're hoping to nut out a way to remove some of those inefficient costs."

This article originally appeared on SmartCompany.com.au