Dwelling investment has peaked earlier than previously anticipated: RBA
Dwelling investment appears to have peaked earlier than previously anticipated, according to the RBA's latest statement on monetary policy.
"Although the significant pipeline of work still to be done should mean that the level of residential construction activity remains high over the next year or so, dwelling investment is not likely to contribute to GDP growth over the forecast period," it advised.
Bank liaison with developers indicates that demand for off-the-plan apartments in the major east-coast cities has moderated, reflecting weaker demand from foreign buyers and domestic investors.
Developers’ access to bank finance – which is secured before obtaining a building approval – has tightened over the past year or so, particularly in areas where there have been very large increases in the supply of apartments, such as inner-city Brisbane, the statement noted.
The statement acknowledged one of the key sources of uncertainty for the forecasts is the outlook for the labour market.
It also suggested weaker-than-expected growth in housing prices or changes in expectations about the likely path of interest rates could also lead to weaker consumption growth than is currently forecast.
The statement sets out the Bank's assessment of current economic conditions, both domestic and international, along with the outlook for Australian inflation and output growth.
It noted conditions in established housing markets have eased in recent months.
"The Sydney market has slowed noticeably; auction clearance rates have fallen and housing price growth has been relatively subdued over the past few months, although this follows very strong increases in housing prices over the second half of 2016 and early 2017."
Conditions remain strongest in Melbourne; vendor discounts and days on market continue to point to very strong conditions, although housing price inflation and the auction clearance rate have declined a little.
"The more pronounced slowing in the Sydney housing market relative to Melbourne may reflect the higher share of investors in the Sydney market; the flow of loan approvals to these buyers has slowed since the beginning of the year."
Housing prices in Sydney are also higher, so affordability could be more of a constraint than in Melbourne.
Higher migration flows to Victoria, both from overseas and interstate, are also supporting the demand for housing, it noted.
Housing prices have declined a little further in Perth, where the rental vacancy rate has increased to its highest level since 1990, driven by the slowing in population growth.
In Brisbane, apartment prices have been little changed in recent months following earlier declines, while detached house prices have increased.
The bank noted overall household indebtedness is high and debt levels relative to income have continued to edge higher because household credit growth has continued to outpace income growth.
"Steps taken by regulators have seen the growth in riskier types of lending to households moderate, but some risks remain.
"For example, a highly indebted household sector is likely to be more sensitive to changes in income or wealth, which could have implications for consumption growth.
"Also, consumption growth could be weaker for a time if indebted households choose to pay down debt more quickly rather than spend additional income."