HIA rejects RBA’s rebalancing plan

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By Leith van Onselen

In today’s Statement of Monetary Policy (SoMP), the Reserve Bank of Australia (RBA) said the following about the prospects of pick-up in dwelling construction, which the RBA is hoping will fill the void left as the mining investment boom unwinds:

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The Housing Industry Association (HIA) has today rained on the RBA’s re-balancing plan, releasing a report card warning that housing construction is unlikely to rebound at the national level in 2013, and that construction growth would remain tepid into 2014 and 2015. From the HIA’s Media Release:

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“The dominant constraints to a sustained recovery in residential construction continue to be found on the supply side. A further tightening of credit conditions for residential development, together with disproportionately high and inefficient taxation as well as excessive regulation of new housing stifle the potential of an inherently efficient component of the Australian economy,” said Harley Dale.

“Lower interest rates are playing a role in creating a more favourable environment for residential construction activity, but Federal government action holds the key to a sustainable recovery,” commented Harley Dale.

“If the residential construction industry is to play its required role in rebalancing Australia’s economic growth then Federal leadership is imperative in a range of areas including a reduction in taxation and regulatory costs, increased banking competition, and greater workplace flexibility,” said Harley Dale.

“In terms of the short term outlook for residential construction it is encouraging to see a new home building recovery underway in New South Wales and Western Australia. However, it appears unlikely that there will be any growth in national housing starts in 2013.”

HIA is forecasting a flat year for housing starts in Australia in 2013, although NSW starts are forecast to increase by 14 per cent and WA starts by 17 per cent. Growth of 2.5 per cent and 2.8 per cent is forecast for national housing starts in 2014 and 2015, respectively, which would take starts to a level of 155,336.

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“Renovations activity endured a disappointing year in 2012, falling to its lowest level since 2002, with weaker levels of home equity restricting finance for renovation jobs.”

HIA is forecasting modest growth of 1.9 per cent in 2013 and 2.3 per cent in 2014 which would take the value of total renovations investment to $29.7 billion, around $1.4 billion short of the 2011 peak.

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Today’s warning, which follows yesterday’s media release from the HIA pleading for urgent action on housing policy, shows clearly that the HIA is stepping-up lobbying efforts in the lead-up to next week’s Budget and perhaps a note caution should be sounded about the HIA’s incentive to deliver the lowest possible forecasts. Still, they clearly do not gel with the RBA view.

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HIA Autumn 2013 National Housing Outlook Media Release

About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.