Building boom to roll on in 2016
Added on by Etairos Accounting
House prices in Sydney and Melbourne increasingly look like they have peaked. But that doesn’t mean Australia’s housing construction boom is ending. That’s the message from Lindsay Partridge, managing director of Brickworks, one of Australia’s leading providers of building products.
For the first time in a decade, Brickworks has kept all of his factories running over the Christmas period. In the last 12 months, the nation's biggest brickmaker has been firing up mothballed plants to meet frenzied new home building on Australia's east coast. The company reports they only have a few days' worth of stock on hand at some sites and demand into 2016 is looking very good.
Last year was one for the record books, and it showed in the earnings of building materials suppliers such as Brickworks, CSR and Boral. In 2014-15 Aussie builders broke ground on a record 211,860 new homes, up 13 per cent on the previous record of 187,000 set in 1994.
The Brickwork's story is important in understanding the impact of aggressive intervention of the Reserve Bank and Australia’s prudential regulator, APRA, in the investor lending market in 2015.
That’s because part of Australia’s necessary economic transition after the mining investment boom was a housing construction boom which would take up economic slack, employ displaced workers from the mining boom and address the deficit of housing supply during the mining boom years.
But, an investor-fuelled house price boom was never part of the Reserve Bank’s policy prescription when it lowered rates twice to 2% in early 2015. The good news is that while investor demand for credit has fallen, the slack is being taken up by owner occupiers.
Brickworks’ Partridge highlighted this noting that, "in NSW we had a very long downturn and that will take a long time to build out…there is underlying demand there.”
The news that prices and construction may be disconnecting and demand for dwellings remains strong suggests that the economy will continue to benefit from the positive economic impact that houses, and the associated purchases to furnish them, have as an addition to economic growth and domestic demand.
The Housing Industry Association is tipping the 2015-16 year to exceed 200,000 new home commencements. "Momentum is clearly with the eastern seaboard markets, including some renewed promise for the the south-east corner of Queensland. NSW is the strongest new housing market in Australia, followed by Victoria," the association said.
(Source: Business Insider, 4 January 2016; Australian Financial Review 4 January 2016)
