Master builders forecasts big housing rebound

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By Leith van Onselen

Master Builders Australia (MBA) has forecast a big recovery in housing construction, although non-residential construction (including mining-related engineering construction) is expected to struggle. From Property Observer:

The embattled residential building sector is forecast to recover strongly over the next three years, with the catalyst being low interest rates…

Masters Builders Australia (MBA) forecasts the value of residential building work done, in real terms, to grow from $46.2 billion in 2012-13 to $60.9 billion in 2015-16.

Over this same time frame, dwelling starts are predicted to rise to 164,000 in 2013-14, 179,000 in 2014-15 and 183,000 in 2015-16 – more than a decade after dwelling starts peaked at around 175,000 in 2004…

MBA chief economist Peter Jones says the forecasts indicate there is “light at end of a very long tunnel for the residential and commercial building sectors, but does not herald a return to boom era levels”.

The building and construction industry group basis these bullish forecasts on the underlying assumption that low interest rates will work to “release significant pent up demand after a long period of under-building that occurred at the same time as Australia experienced strong population growth”.

The forecasts have been developed by Master Builders in collaboration with Independent Economics.

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“The stronger performing states are forecast to be Queensland, New South Wales and Western Australia,” says Jones.

“The key risks to the forecasts are frail consumer confidence, economic uncertainty, asset price volatility and ongoing softness in the labour market.

“The improvement in the residential building outlook comes from a very low base and the challenge remains for policy makers to address supply side inefficiencies and impediments that have contributed to the nation’s growing housing shortfall,” he says…

My view is that there will be a softer rebound in residential housing construction. As argued previously, residential land prices are still far too high, which will mitigate the stimulatory impacts of lower interest rates and first home buyer incentives. Then there is the question of where the credit will come from for suchs a surge. In addition, it’s hard to see so significant an uplift in housing demand and construction as commodity prices and mining-related capital expenditures fall. Still, if true, it will go some distance to bridging the mining investment cliff, at the expense of a huge current account deficit.

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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.