Yesterday’s Financial Review Sunday program, aired on the Nine Network, contained an interesting segment on Australia’s housing construction industry and whether it will be able to fill the void left as the mining investment boom unwinds.
Adelaide Brighton chief, Mark Chellew, argued that the dwelling construction recovery was fairly muted due to people getting married later in life and having less children, because they are still concerned about the GFC. According to Chellew, this meant the recovery is taking place at a much slower rate than experienced following prior rate-cutting cycles, and he is calling on the RBA to cut rates further in order to provide additional support to the home building sector (the full interview can be viewed here).
A similar view was expressed by Merriton chief, Harry Triguboff, who noted that most of his apartment sales were to the Chinese, and that the RBA needed to cut interest rates until locals could afford to buy and to make purchasing more attractive than renting (the full interview can be viewed here).
In the post script to the segment, Nick Greiner noted that the RBA is battling falling confidence, which will need to be restored before housing construction will rebound materially.
What I found most frustrating about the segment and seperate interviews with Chellew and Triguboff is that nowhere did they mention the main cause of the construction malaise, namely: excessive land costs, constipated planning systems, and inadequate financing and provision of infrastructure, which together are preventing home builders from supplying desirable stock at an affordable price point and, consequently, pricing many would-be buyers out of the market.
Instead, they are yet again seeking to treat the syptoms unaffordability by arguing for the RBA to lower the cost of credit further and encouraging households to add significantly to their already hefty debt loads.
Thankfully, the Australian is out today talking some sense, noting that a lower Australian Dollar – brought about in part via falling interest rates – could adversely impact on dwelling construction by forcing-up the cost of importated raw materials, like timber. They also quote the Housing Industry Association (HIA) Harley Dale’s calls for a focus on eliminating planning red tape, cutting taxes on development, and improving land supply and infrastructure provision, in order to boost housing construction:
“Outside of what is happening to material prices and labour prices in the residential construction industry, we have the fact that it’s a very heavily taxed industry and a very heavily regulated industry,” Mr Dale said.
“Those are areas of reform that governments can do something about so that in an environment where the industry might be facing upward costs, it’s not also facing excessive pressure from areas that something can be done about outside of market forces. There needs to be a co-ordinated effort across levels of government to address perennial issues around land supply and infrastructure.”
He said research conducted by the association found a reduced regulatory burden on residential construction could alleviate a drop in the dollar.
As I have argued dozens of times over the past year, the RBA’s plan for housing to fill the void left as the mining boom unwinds will remain a forelorn hope unless major reforms are made to the myriad of structural supply-side barriers that are preventing the provision of affordable housing and pricing many buyers out of the market.
Simply continuing to lower the cost of credit will support the established home market through higher prices and increased turnover, but it will have only a muted impact on construction as long as these structural barriers remain in place.
