Guv’ment to win from housing

From UBS today:

Positively, we expect the housing pick-up to persist amid a prolonged period of record low interest rates. This is an important upside for State Government revenue (noting that this contrasts our expectation for a further $30bn+ cumulative downgrade for the Commonwealth Government budget at the upcoming MYEFO). Our analysis across a range of indicators shows it is quite plausible there will be a ~18% average lift of transfer/conveyance duty in FY14 across the States & Territories, led by strength in NSW. This would equate to an additional ~$1¼bn of revenue compared to current budgets (Chart 11). There is also probably further upside from stronger than expected increases in other housing related revenue. This would also set a higher base of revenue for the ‘out-years’ – implying a larger cumulative boost to Budget positions.

This housing pick-up is part of a broader story of the economy rebalancing back to non-mining domestic growth, as the capex boom fades over coming years. There is also the prospect that improving budgets mean State Governments become more prepared to accelerate the (long-awaited and much-needed) process of investing more in housing supply and the associated infrastructure spending. Related to this, there seems to be signs that new high-density housing supply is responding to the pick-up in demand (particularly in NSW). A stronger housing cycle should also see some improvement in retail sales ahead (albeit to date tracking in line with Budget forecasts) – which would support GST revenue that has been constrained by changing spending patterns, amid pressure from the high AUD and consumer caution.