What happens to property when stimulus ends?

Federal Government stimulus – most notably the HomeBuilder and First Home Loan Deposit Scheme – has done a terrific job juicing new home construction.

Detached house approvals have hit a 20-year high:

Whereas construction finance commitments have experienced an unprecedented rise:

This has inevitably posed the question of “what happens to construction when the stimulus unwinds”?

The latest forecasts from the National Housing Finance & Investment Corporation (NHFIC), released last month, forecasts that construction will collapse in 2022 as stimulus unwinds:

According to NHFIC, net annual dwelling additions will decline from 180,900 to 159,500 in 2022 and then to only 120,500 in 2023.

If these forecasts come to fruition, then the housing construction industry is facing a sharp contraction.

This will put pressure on federal and state governments to extend stimulus to prevent the downturn. It will also encourage the federal government to reboot mass immigration to backfill supply.

Australia is the property equivalent of a narco state, after all.

Unconventional Economist
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Comments

  1. happy valleyMEMBER

    “This will put pressure on federal and state governments to extend stimulus to prevent the downturn. It will also encourage the federal government to reboot mass immigration to backfill supply.”

    Like money printing, housing stimulus will become a permanent stimulus and SFM will have mass immigration numbers going off the charts, before you can catch your breath.

    The local primary school already has an 80% Asian cohort – fully expect that to be almost 100% within 5 years.

    • Jumping jack flash

      The economy IS house prices because we have a debt economy, and most of the debt is attached to the houses. The high house prices justify the debt, and the debt justifies the high house prices. It is a symbiotic relationship.

      If the house prices were to fall then the volume of debt attached to them supporting the economy couldn’t be justified and it would shrink. Shrinking debt means shrinking economy when an economy is mostly debt and debt growth.

        • Jumping jack flash

          The population ponzi is a symptom of insufficient debt growth. If the debt was inflating fast enough we wouldn’t need cheap workers to steal wages from because debt would be abundant and everyone would be paid as much as they needed to be paid to be eligible for the debt they need. It is only when debt becomes scarce that we need to steal wages to boost our own incomes to obtain the necessary amounts of debt.

    • In 2019 Government Federal Debt was $600 Billion and 45% of GDP.

      In 2020 Government debt – in a COLLAPSED ECONOMY was $950 Billion – but only 30% of GDP !!!

      Lols – what an absolute circus, and who bothers to bring up these glaring shocks to basic maths, basic reality, basic truth ?

      Shocking, really shocking that this is just not mentioned by anyone.

      $300+ Billion in state debt, $1.2 Trillion in house hold debt

      Mean while – 48% of our entire trade is with China who has wiped out most of their market.

      Looking good. Thankfully ratings agencies in the US are fully weaponised to the Anglo-alliance.

  2. It’s an interesting scenario. I am in the process of finalising planning for a new build. I’m considering holding off on signing a contract until later in 2021 if Homebuilder isn’t extended. I expect builders will be much more willing to be reasonable with their pricing if their pipeline starts to thin out.

    • It might depend on where you are. This Retirement/Tourist joint has been smashing them out harder than the early 2000’s boom, with no end in sight.

      Plenty of Tradies here, but we Always need more.

  3. What happens to property when stimulus ends?

    – All depends on how quickly ScoMo can re-introduce mass immigration into Australia

    Let’s hope COVID can stick around long enough to ensure he can’t effect this re-introduction any time soon

  4. Jumping jack flash

    What will happen? Well there are two obvious scenarios:

    The first scenario is the good one and I really hope it prevails for the sake of everyone: the debt created by this debt boom supported by the recent stimulus is adequate to allow price inflation to return, which will flow into wage inflation, and then kick off the next cycle of debt inflation, which is adequate to allow the next bout of price inflation and wage inflation, in that order, without any additional external input or economic shenanigans required. It goes without saying that the debt is attached to houses because they’re a very convenient thing to attach debt to.

    The second scenario is not so good: the debt created by the current debt boom isn’t sufficient to allow widespread price inflation and wages continue their stagnation. The subsequent correct amounts of new debt in the next debt cycle cannot be created to allow prices to continue to inflate, wages to inflate and debt to inflate [and so on and so forth in that exact order]. The implications of this is more immigration is required to steal wages from and limp along the debt growth, and limp along the economy. The problem with this scenario is that the pile of nonproductive debt supporting our economy is inherently deflationary and the growth in the debt will be insufficient to counter the deflationary effect of the debt’s interest. And there is a LOT of debt, and a LOT of interest. Additional interest rate cuts and economic contortions like QE and bank funding facilities will continue to be required to provide cheaper debt and attempt to maintain the illusion of economic growth in the debt economy.

    • Bless your heart, “wage inflation” isn’t going to happen with a government that has actively suppressed wages for the last ten years, to the extent they actually removed Sunday penalty rates for hospitality staff.

      I wish the first scenario was going to happen …. but it won’t.

      What will happen is the opening of the immigration floodgates again, in the form of students converting useless degrees into citizenship.
      It’s worked for decades for the LNP government and they are too lazy (or stupid) to come up with new ideas or policies.

      • Jumping jack flash

        I wish for the first scenario as well. There’s no reason why it can’t happen. There is no risk.

        Indeed there was a time when it did happen, ever so briefly until everyone freaked out and raised interest rates to stop it.

        “It’s worked for decades for the LNP government and they are too lazy (or stupid) to come up with new ideas or policies.”

        But it actually hasn’t worked. Everything was completely in the gutter at the end of 2019. Shops closing everywhere. Wages stagnant, debt not growing despite ZIRP, QE initiated. These are not signs of a healthy economy.

        • Everyone here at MB would agree with you, but logic left Australia a long time ago.

          The LNP has been kicking the can down the road for years. It’s all they understand. They won’t change anything.

        • “There is no risk.”

          Lols – Australia was almost entirely reliant for survival on the China trade at %48 of our entire export market. (Financial Times).
          The ONLY thing keeping us alive right now is iron ore at $180 / t – if that goes back to trend (below $70) then we are completely toast as almost everything else has been removed.

          And it 100% will go back within the next 3 months.

          “There is no risk.” – absolutely kidding me.

          • Jumping jack flash

            No risk if LVR is maintained.
            Of course there is risk, but according to their own definitions of risk, there is none

  5. Our best hope for delaying the flood gates opening, is either the virus significantly mutating so that current vaccines are ineffective, or significant side effects from the vaccine start to show up.

    • If there’s a delay there will be more stimulus. This construction cliff isn’t going to happen, there will be a boom from all the money sitting in people’s accounts once confidence returns following vaccine and slow return of immigration. Any delays will be global not just an Australia phenomenon so further accomodation globally dragging the RBA and a fiscal response with it.

      • Nope.

        There is already a global currency war ramped up to 11 based on the US rampant money printing totally devaluing their dollar – its toast, completely cactus and everyone is heading face first into crypto, gold with full knowledge thats its all over.

        The debt facade is finally coming home to roost – Australia has a trillion public debt and a trillion private debt – well over 200% of GDP – we are completely screwed with full exports.

        But China has pulled the pin and the only thing left is iron ore at $180 – that will be below $70 within a few months and thats it – cactus.

        People are DELUSIONAL on this issue – debt has huge consequences for a “taking” nation like Australia.

        • Jumping jack flash

          1

          I used to think like you, but then I finally understood how their system works and it is truly a great system. If you look through the last couple of decades at our leaders’ seemingly absurd, chaotic and unhinged actions it all makes sense when viewed with the lens of infinite debt growth. Why pour additional people into an economy that has stagnant and falling wages? Why declare skills shortages and then import unskilled people? Why lower interest rates every few months? What’s up with wage theft and why is it even a thing now? Why are all measures of risk ignored except LVR? How can an entire, properly functioning economy be completely controlled by humble interest rates? And not just any old interest rates, the cash rate – the interest rate that is the furthest removed from having any conceivable effect on the average Quiet Australian. I struggled with this for a long time. How can it be? Well it is quite simple, it is possible because the economy IS debt and since debt is deflationary, debt needs to grow.

          And if the debt grows fast enough it doesn’t need anything else except debt, it is simple and that is its beauty. Debt creates debt, debt justifies and secures debt, and debt services debt.

          Then we get China to make everything we actually use incredibly cheaply and we supply them with our resources and pay them with our debt.

          Basing an entire economy on debt growth also has a very small carbon footprint compared with actually taking raw materials and skillfully and expertly turning them into finished goods to sell for profit. That’s full of incredible risk and danger and oh, the pollution! Best let someone else do it. We have houses to buy with nice, clean debt.

  6. Australia detached housing construction … massive lift …

    … Why is the dilatory New Zealand Ardern Labour government failing to allow Kiwis and the construction sector to compete with Aussies ? …

    … Why allow the flight of housing deprived and aspirational Kiwis to Australia to resume ? …

    November 2020 – Building Approvals … Australian Bureau of Statistics

    https://www.abs.gov.au/statistics/industry/building-and-construction/building-approvals-australia/latest-release

    October 2020 … Building Consents … Statistics New Zealand

    https://www.stats.govt.nz/information-releases/building-consents-issued-october-2020

    Australia detached housing construction’s massive lift … latest ABS Monthly report November (Statistics New Zealand November report release date Thursday 14 January).

    17,205 units for month extrapolated by 12 (year) 206,460 with population about 25,700,000 … therefor November annualized 8.033 consents / approvals per 1000 population per annum.

    New Zealand Statistics NZ October report there were 3,659 residential dwelling units approved / consented … by 12 (year) 43,908 with population of 5,100,000 … therefore October annualized 8.6 consents approvals per 1000 population per annum.

    ( Note … Statistics NZ regularly incorporates the important measure ‘consents / approval rate per 1000 population per annum at national, regional and territorial authority level’. This measure is essential, as raw approval / consent numbers on their own without reference to the underlying population bases, are generally meaningless. )

    November yoy Australia’s dwelling approvals up 15.0% with private sector houses component up an astonishing 33.6% and dwellings excluding houses (i.e. apartments) down 13%.

    In October New Zealand’s seasonally adjusted number of new dwelling consents rose 8.8% with the October year consents 37,981 ( 7.44 consents rate per 1000 population per annum) up 2.8% on the previous year.

    Australia (other than Tasmania) still has a more dynamic / responsive lower cost and more efficient production detached house building sector in place … while New Zealand politicians and planners wrecked New Zealand’s one decades ago … so the industry reverted back to the less efficient and high cost horse and buggy cottage construction industry.

    How is New Zealand’s residential construction sector expected to compete with Australia’s going forward ?

    Why have the New Zealand politicians dithered in failing to deal with the structural impediments ( land supply and infrastructure debt financing … extensive background information http://www.PerformanceUrbanPlanning.org ) … allowing the restoration of residential production systems in New Zealand, so that it can compete more effectively with Australia ?

    New Zealand’s total dwelling stock value is about 4.66 times GDP ( $ NZ 1.4 T / $ NZ 0.3 T ) while Australia’s is about 3.68 times ( $ A 7.0 T / $ A 1.9 T ) … with the overall national metros house price to incomes ( refer 2020 16th Edition Demographia International Housing Affordability Survey http://www.demographia.com/dhi.pdf ) … New Zealand 7.0 Median Multiple … Australia 5.9 Median Multiple … ( apartments are excluded ) … the 17th Edition Survey released Monday 25 January will likely show a widening gap.

  7. 2021/22 property crashMEMBER

    Fools are rushing in and buying overpriced assets. They will experience no growth for decades unless the property can be developed or substantially improved. At best they’ll have an expensive house to live in and won’t care about it value but investors who think gearing is still wise will just become a charitable entity renting homes to strangers for less than cost. Don’t be an idiot. Stay away from the housing market.

  8. 2 questions I dont think have yet been discussed in the thread:

    1. What about the TFF? Banks are also juicing construction with TFF supported low fixed rate mortgages. What happens when the banks have to again access wholesale lending and interest rates on all of these new loans jump 15-30% (assuming RBA keeps rates steady)?

    2. If the mining boom 2.0 continues, along with the wealth effect from housing growth, are we at a risk of inflation returning (albeit briefly?), forcing the RBA to raise rates. Given Australia’s leverage vs Boom 1.0, is a housing price collapse possible?

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