Australia's housing construction boom slowing
Cracks are appearing in Australia's housing construction boom and there are fears it will peak in the next 12 months.
Many have touted the property sector as the nation's next big hope for the economy as mining investment fades, a hope supported by strong retail sales figures for June, published on Tuesday, which showed a splurge in spending by people renovating and fitting out houses.
But with the Reserve Bank of Australia preparing to give its quarterly outlook for the economy on Friday, financial analysts at the investment bank Nomura think the housing boost may soon run out of steam.
"Maybe we've fired that bullet," said a Nomura strategist, Andrew Ticehurst.
“It looks like we’ve got a bit less support for the economy over the year ahead coming from housing.”
Another analyst, Brian Johnson, of the broker CLSA, said he had concerns about the Perth-West Australian housing market.
“Every channel check we do highlights Perth-Western Australia as particularly vulnerable given already weakening property prices, slowing population growth, a slower WA economy, elevated housing starts and falling rents,” Johnson said in comments to clients reported by the Australian newspaper. Brisbane was also vulnerable.
Strong growth in home loans and building approvals have seen house prices in country’s two major cities, Sydney and Melbourne, grow quickly over the past two years. But Ticehurst believed the boom could be losing momentum.
Although the number of people borrowing money to buy existing homes was rising, the number of people getting loans to build a house had moderated.
“So when you look at turnover in the established housing market, that’s great for real estate agents and conveyancers and solicitors and accountants,” he said.
“But it does relatively less for GDP, and it certainly doesn’t employ builders.”
The number of new-home loans fell to an almost two-year low in May, as the banking watchdog tries to crack down on risky mortgage lending.
Home loan approvals fell 6.1%, disappointing economists’ expectations of a 1.5% fall.
Late in 2014 the Australian Prudential Regulation Authority (Apra) announced there would be greater scrutiny of lending practices after a surge in investors entering the housing market drove a second year of double-digit home price growth.
And Ticehurst said building approvals data, which lag behind the housing finance data by a month or two, also looked like it was topping out a little.
Building approvals in June suffered their largest setback since September 2014 as the huge surge in high-density dwellings eased.
Approvals for new home construction fell 8.2%, way worse than market expectations of a 0.9% fall.
But he acknowledged that those figures can be volatile, with numbers bouncing around as apartment blocks are approved each month.
Another factor putting the brakes on the economy was slowing population growth due to weaker net immigration, Ticehurst added.
As of about December last year, Australia’s population was approximately 23.6 million people but the annual rate of growth had slowed from about 1.75 per cent to about 1.4 per cent, he said.
And in 2014 we had fewer arrivals and more departures compared to 2013.
“The rate of growth that the economy is actually likely to be able to achieve is also going to be a bit slower,” Ticehurst said.