Dwelling construction bust to wipe out 100k-plus jobs

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Fletcher Building recently stated that it expects a 20% decline in new dwelling approvals in 2019-20. Its comments echo those by the Housing Industry Association (HIA), which has forecast that new building approvals will be around 20% below the most recent “boom-time average” as a consequence of tighter credit rules. It adds that sustained infrastructure investment by the states and territories will help to limit the extent of any decline:

“If economic activity improves, the credit squeeze dissipates, home prices stabilise and the recent stimulus measures take hold, the supply of new work into the pipeline will soon reach its low point.

“All indications are that this stabilisation will occur and prevent a more significant downturn. This will set a new market equilibrium where the supply of new homes meets, rather than exceeds, demographic growth requirements.

“This new equilibrium will see the number of new homes remain around 180,000 per year, not in excess of the 200,000 that have been built each year, for the past five years.

“At first glance, demand for new detached homes appears to have held up well with only a 9.0 per cent contraction in starts over the year. This apparent resilience is due to the lag between the sale and commencement of construction of the houses and gives the impression that contemporary market conditions are stronger than is the case.

“The apartment market on the other hand is continuing to contract rapidly and starts are now 41.8 per cent lower than a year ago. The number of apartments under construction will continue to fall as more projects reach completion and fewer new projects enter the pipeline. “The silver lining to this contraction is that there is a convergence of conditions underway in the building industry. We no longer have a boom in east-cost capital cities and stagnating markets elsewhere. “Interest rates, income taxes and lending restrictions have all been eased in an effort to support activity and economic growth. State and Australian Government investment in infrastructure is also important to support labour market growth.

“These measures are now supporting activity in housing markets across the economy.

“Detached house starts are forecast to decline by 7.6 per cent in 2019/20, primarily in the first half of the financial year and stabilise at around these levels for the following two years.

“The drop in multi-unit starts has occurred faster than expected. A further decline of 12.0 per cent is forecast for 2019/20 before a slow improvement in 2021/22,” concluded Mr Reardon.

This looks about right given the decline in dwelling approvals, which is the best forward indicator of construction:

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Regardless, UBS expects the construction sector to shed around 100,000 jobs by the end of 2019:

And given the apartment quality control crisis, the risks are to the downside of the UBS outlook and made worse by the projected fall in infrastructure investment:

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That’s potentially 150,000 jobs that could disappear over the next year or so:

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And given that over the past few years that same sector was adding around 50,000 jobs per annum, it’s a swing of between 150,000 to 200,000 jobs.

Expect the RBA to slash, burn and print!

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.