The great engine of growth that has held up the economy since the end of the resources boom two years ago will soon run out of puff, say ANZ Bank economists who predict the housing sector is reaching its peak performance.
Increasing regulatory crackdowns on investor borrowing, new taxes on foreign buyers, and growing fears of an apartment oversupply in Brisbane and Melbourne are set to weigh on construction this year and in 2017, they said.
“The contribution to the economy from the housing sector is set to ease,” said economists Daniel Gradwell and Felicity Emmett.
Stoked by record-low Reserve Bank of Australia official interest rates the housing construction and property sales sectors have generated considerable economic growth across NSW, Victoria, and parts of Brisbane over the past two years.
As well as generating considerable revenue for state and territory governments through a surge in stamp duty, the construction boom now in full swing has helped absorb workers from the waning resources investment phase.
At the same time, services sectors have been given considerable support through a surge in household wealth associated with rocketing house prices.
The research is a reminder that the Australian economy continues to face substantial structural challenges to generate fresh sources of productivity-driven growth, having been supported since the global financial crisis by the resources and subsequent housing construction boom.
ANZ’s economists predict demand for new homes is expected to ease from what they now described as “a broad peak” in the housing sector.
National annual price growth will slow from a peak last September of 12.8 per cent and the current 8.1 per cent pace to 6.4 per cent and 1.7 per cent in 2016 and 2017 respectively.
“Construction activity is also expected to moderate,” they said. “Building approvals remain below last year’s peak, suggesting that the rapid growth in starts and work done is unlikely to be sustained.
“However, a tremendous backlog of work will continue to support construction around record levels.”
They warn that the large backlog is generating a risk of oversupply in Melbourne and Brisbane.
On the policy front, moves by the Australian Prudential Regulation Authority in 2015 to curb investor borrowing has slowed total credit growth, while foreign buyers are also being targeted.
“Several state governments have either implemented new or increased existing taxes on foreign buyers,” they said in a note to investors on Monday.
“These measures together could see reduced demand from foreign buyers, although there is little hard evidence of this.”
ANZ Bank also warns that a gradual increase in property vacancy rates is dragging on growth in rents, which at 1 per cent a year are now posting the slowest gains in two decades.
Ongoing supply from the current construction boom mean rent inflation is likely to remain subdued.
Given soft rental cost growth, and strong house price growth over the past year, it has become increasingly more affordable to rent, rather than buy,” they said.