First home buyers turn to new builds as house prices boom

First home buyers are turning to new builds or looking at building their own home amid rising price pressures, says NAB.

First home buyers are increasingly turning to newly built homes.

First home buyers buckling under the impacts of a sustained property price boom are increasingly likely to consider building their own home or purchasing a newly built dwelling just to get a foothold in the market, according to NAB’s latest quarterly residential property survey.

The survey – which covers the second quarter of the year – also shows that government assistance measures for first home buyers are only “moderately” helpful, with higher property prices and rising rents making it hard for first home buyers to save enough money for a deposit.

It comes as the pace of the continuing boom has also prompted NAB to up its outlook for dwelling price growth to 18.5 per cent for 2021, although it revised its growth expectations for next year down to 3.6 per cent. The NAB Residential Property Index also hit a high in the quarter.

“Faster than expected outcomes in recent months see a higher starting base, and while we see a slowing in the monthly pace of growth from here, we still see solid growth over the next six months,” NAB said.

“Affordability constraints will likely begin to bind over the year and see a slowing in price growth as the impact of lower rates fades.”

According to the survey, over half of first home buyers are more likely to consider building or buying a new-build home than they were two years ago.

NAB Executive for Home Ownership Andy Kerr said over the past two years first home buyers had been interested in areas where new builds are more common.

“What we saw last year was first home buyers moving into the regions, looking for that sea change or tree change. Our most recent analysis for the first four months of 2021, what we saw was a shift to the outer suburbs and inner cities,” he said.

“As prices grow in regional Australia, people coming back in and finding bargains in the outer suburbs and metro areas.”

The survey also shows that first home buyers are the most active participants in new housing markets, comprising 47.8 per cent of new build sales over the quarter – more than twice the figure recorded when NAB began tracking the data in 2014.

However, that figure is slightly below first home participation last quarter and is likely to fall further.

Property professionals interviewed for the survey indicated that government incentives like the Federal Government Home Loan Deposit Scheme, the Commonwealth Home Builder Grant and various state-based schemes were only “moderately significant” in assisting buyers.

Mr Kerr said that although demand for these schemes remained strong – particularly the loan deposit scheme, which allows people to buy with a 5 per cent deposit – price increases meant some buyers were still priced out.

“I think the impact it is having is lessening over time as a result of the property price increases, but there is still very strong demand for it and we’re still seeing lots of first home buyers that we are helping through that scheme,” he said.

First homebuyer activity will also feel the pinch of new build supply constraints, the survey indicated.

“A lack of development sites was again the biggest impediment for new housing development in the country in the second quarter, led by Victoria and NSW,” NAB said.

“The impact of construction costs climbed sharply, and has now emerged as the biggest constraint. Issues arising from labour availability also jumped sharply, led by South Australia and Western Australia.”

Elsewhere, rising property prices also hit first home buyers in established housing markets, with their share of market sales dipping from 40 per cent to 37.2 per cent.

“With house prices continuing to grow rapidly, there was a significant increase on the level of concern expressed over the impact on buyers coming from house price levels,” NAB said.

“The level of concern over house prices was highest in NSW and VIC and lowest in WA.”

NAB said that recent lockdowns in Sydney and Melbourne are unlikely to hit demand too hard, noting that more than a third of mortgage application conversations the bank had with customers last week were via video.

“The current lockdowns will have a sizeable fall in GDP in the third quarter, but we remain optimistic that as restrictions are eased activity will rebound as has been the case in previous lockdowns,” it said.