Housing may be the little engine that can't any longer: ANZ Research
GUEST OBSERVER
The March quarter 2016 ANZ-Property Council Survey shows that the property sector is expecting much slower growth in housing construction and house prices across most markets in the coming year.
This highlights the challenge that weaker growth from the housing market will present for the Australian economy in 2016.
However, the survey also revealed a slight increase in property sector confidence, with the sharp decline in housing market confidence being offset by both a solid pipeline of planned work for property businesses in 2016 and an optimistic outlook for commercial property.
Despite weaker housing sales activity in recent months and a sharp decline in house price growth expectations, the ANZ-Property Council Survey showed continued strong demand for Australian housing from foreign investors. In future, this measure may be impacted by tighter foreign investor policy enforcement by the Australian government (effective from 1 December 2015) and the recent volatility in China’s financial markets.
The housing sector, which plays an important role in shaping the Australian economic cycle, will likely be less stimulatory for growth in 2016 than in 2015. The ANZ-PropertyCouncil Survey shows that in the largest, and until recently strongest, state housing market of New South Wales, there has been a tempering of confidence and indications of the forward work schedule have also become more muted.
Most other states and territories are steadier though, with evidence of a continued improvement in confidence in Victoria and Queensland. This is consistent with our view that there will not be a significant downturn, but a more muted profile for housing construction and prices this year. The exceptions are Western Australia, where planned business activity and confidence continue to deteriorate, and Tasmania, which has shown a significant pick-up from a low base in recent quarters.
Overall, the housing sector’s contribution to growth will ease through softer construction activity and a reduced ‘wealth effect’ on Australian households from weaker price growth. The recent ANZ-Property Council Survey results show that tighter regulation of investor mortgage lending and higher mortgage lending rates have weighed on housing market sentiment.
This has also become evident in weaker mortgage lending data through the second half of 2015. Today’s survey data suggests that the property industry is bracing for higher interest rates and more prudent credit distribution by lenders. We expect, however, that the Reserve Bank may provide some relief for the economy this year, through interest rate cuts, if other sectors do not pick up to compensate for the slower path of housing.
Cherelle Murphy is co-head of Australian Economics, ANZ. David Cannington is senior economist. They can be contacted here.