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Concerns are yet again being raised about how the construction industry will fare amid a drastic drop in the number of new lending commitments, particularly from investors.
Figures released by the Australian Bureau of Statistics (ABS) data on Wednesday (11 November) have revealed the number of new home loans fell 15 per cent in the September quarter of 2026, to 111,878, leaving commitments 21.4 per cent lower than a year earlier. The total value of new housing loans dropped 15.5 per cent to $81.157 billion.
While business lending data showed construction finance climbing 27.6 per cent over the quarter to $17.2 billion (51.8 per cent higher annually), members of the housing and building industry have warned that the collapse in residential mortgage demand, particularly among property investors, threatens future project feasibility.
Indeed, new mortgage commitments for investors fell 30.6 per cent during the quarter (to 35,301 loans) and the value of those loans dropped 32.3 per cent to $24.705 billion. The ABS noted the decline was almost twice the previous record, leaving investor loan numbers 38.5 per cent lower than a year earlier.
Speaking of the change in flows, Matthew Pollock, CEO of Master Builders NSW, said the third consecutive quarterly drop in residential lending is eroding industry confidence and will directly reduce future building activity.
“Builders are concerned that this is now a downward trend that’s eroding confidence. It’s the third straight quarterly fall, and lending is now down by a quarter since the end of last year. That’s more than 38,000 fewer home loans a quarter than in December.
“The federal government’s policy failures are creating an unsustainable environment for our industry. Fewer loans mean fewer approvals, fewer commencements and fewer completions, which means a shrinking pipeline of work for our members,” Pollock said.
The Master Builders CEO blamed federal tax policy and persistent inflation for driving investors out of the market, warning of direct consequences for multi-density residential construction.
“This is the inevitable result of the federal government’s decision to hike up property taxes and its failure to tackle the homegrown domestic pressures responsible for driving up inflation, which has forced the Reserve Bank to raise interest rates,” Pollock said.
“The federal government’s property tax changes have resulted in investors hitting the brakes hardest. New investor loans fell 30.6 per cent in the September 2026 quarter, almost double the previous record, and they’re down more than 40 per cent since December 2025,” Pollock said.
“Investors fund a big share of new apartments and rental homes. Making them vacate the market means that pre-sales dry up, projects become unfeasible and the forward pipeline of work evaporates,” Pollock said.
Indeed, while rate hikes have slowed borrower activity, ABS head of finance statistics Dr Mish Tan reflected that the scale of the investor pullback pointed to drivers beyond interest rate hikes alone.
“While lending activity fell across all borrower types in the September quarter, the decline was sharpest for investors. Our data suggests that investor activity is being influenced by factors beyond increasing borrowing costs, including the potential impacts of tax changes and expectations of lower house prices,” Tan said.
Owner-occupiers and first home buyers also pull back
According to the ABS stats, borrowing weakness extended across all buyer segments, challenging government claims that May’s federal budget tax changes are improving conditions for aspiring home owners.
Owner-occupier loan numbers declined 5.3 per cent over the quarter, particularly driven by falls of 10.4 per cent in Queensland, 6.6 per cent in Victoria, and 4.1 per cent in NSW. Owner-occupier loans now sit 9.8 per cent below the same time last year.
First home buyer loan numbers fell 8.6 per cent over the quarter and 12.3 per cent annually, though they still represented more than one-third of owner-occupier commitments.
“It is concerning that on the same day we’ve had the data show the largest fall in new housing loans on record, the federal housing minister has come out and said the tax changes in the May budget are good for first home buyers,” Pollock said.
“But loans are down across the board. First home buyer loans are down 9 per cent and owner occupier lending fell 5.3 per cent nationally and 4.1 per cent here in NSW,” Pollock said.
“Higher property taxes, high inflation and low productivity are bad for everyone, including first home buyers,” Pollock added.
Rate hikes and sentiment weigh on outlook
The building industry has also been warning about the impact on construction feasibility amid a souring in borrower sentiment.
Following the Reserve Bank of Australia’s decision to lift the cash rate by 25 basis points to 4.85 per cent in November (marking its fifth increase in 2026 and an 18-year high), borrower sentiment has plunged to a new low.
Separate surveys from Westpac–Melbourne Institute and ANZ–Roy Morgan released on 10 November showed mortgage-holder confidence fell to all-time lows, with 72 per cent of respondents in Westpac’s survey expecting further mortgage rate rises over the next year.
Meanwhile, refinancing and application volumes have also lost momentum.
External owner-occupier refinances fell 3.8 per cent over the quarter to 63,475, while CBA’s first-quarter trading update on Wednesday revealed home loan applications across CBA and Bankwest dropped 16 per cent annually in the September quarter.
The trepidation for the construction industry comes hot on the heels of other warnings from the building sector. Earlier this month, both the Housing Industry Association and Master Builders Australia warned that the definition of new housing and changes to discretionary trust taxation in the latest tranche of federal budget tax reforms could undermine the building industry.
They used their opening statements to the Senate economics legislation committee to raise concerns about the proposed changes, arguing they could increase costs for builders and restrict the types of development recognised as new housing.
[Related: Building industry raises alarm over next tranche of tax reforms]
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