Home building hits three year low: CommSec's Ryan Felsman

EXPERT OBSERVER 

The number of dwelling starts (commencements) fell by 16.3 per cent in the December quarter to 46,706 dwellings after falling by 3.8 per cent in the September quarter. 

House starts fell by 7.6 per cent in the December quarter and apartment starts fell by 26.8 per cent. 

Work started on 221,606 new dwellings over the 12 months to December, up 2.4 per cent on the year, but fell from the record high of 234,179 dwellings in the year to December 2016. 

Across Australia, starts in the December quarter fell in seven states/territories: NSW (down by 15.6 per cent); Victoria (down by 10.5 per cent); Queensland (down by 29.7 per cent); South Australia (down by 4.5 per cent); Western Australia (up by 14.9 per cent); Tasmania (up by 3.9 per cent); Northern Territory (down by 24.6 per cent); and the ACT (down by 53.1 per cent).

In the year to December, dwelling starts were higher than the decade average in all of the states & territories except for the Northern Territory (down 53.9 per cent), and Western Australia (down 30.8 per cent). Starts in NSW were 43.2 per cent above the decade average. Next highest was the ACT where starts were up by 42.7 above the decade average with Victoria up 22.5 per cent; Queensland up 12.4 per cent; Tasmania up 12.0 per cent; and South Australia up 8.5 per cent. \

In the December quarter $72.9 billion of residential and commercial building work was yet to be done (completed), up 5.6 per cent on a year ago. 

The value of residential and commercial building work in the pipeline stood at $94.9 billion at the end of December, down by 0.7 per cent on a year ago but down from a record $99 billion at the end of June.

Across Australia, 216,948 homes are being built, down from a record 230,573 homes in March.

Consumer confidence 

The Westpac/Melbourne Institute survey of consumer sentiment index rose by 1.9 per cent to 100.7 in April. But the sentiment index is below its long-term average of 101.3 and down 1.7 per cent over the year to April. A reading above 100 denotes optimism. The survey of 1,200 people was conducted from April 1-5. 

The current conditions index fell by 3.2 per cent, but the expectations index rose by 5.4 per cent. 

Three of the five components of the index rose in April: 

The estimate of family finances compared with a year ago fell by 5.0 per cent to 80.2;

The estimate of family finances over the next year rose by 4.1 per cent to 105.6;

Economic conditions over the next 12 months rose by 6.2 per cent to 101.8; 

Economic conditions over the next 5 years rose by 5.9 per cent to 100.2;

The measure on whether it was a good time to buy a major household item fell by 2.0 per cent to 115.5. 

Housing outlook: A good time to buy a dwelling? The index rose by 2.4 per cent to 119.4, and was up 14.9 per cent on the year. House price expectations rose by 11.9 per cent to 95.6, but were down by 26.5 per cent on a year ago. 

Unemployment expectations: Unemployment expectations fell by 2.5 per cent to 127.4 in April to be up by just 1.4 per cent over the year.

What are the implications for interest rates and investors? 

Council approvals to build new homes may have eased from record levels, but there is still plenty of work to be done over the next year. Dwelling starts in ‘boom’ state of Tasmania are particularly strong. At the other end of the spectrum, building in the ‘Top End’ is at record lows due to weak population growth. 

And it’s not all ‘doom and gloom’ for building materials’ companies. In fact, the growing pipeline of public transport-related infrastructure projects could ‘fill the gap’ for residential builders, while boosting demand for building products. If re-elected, the Federal government has committed to $100 billion worth of rail, roads and other transport projects over a 10-year period. 

Consumer spending and the jobs market are both key to the interest rate outlook. Spending at supermarkets and on food have both been solid. As the Easter holidays approach, retailers will be hoping that Aussies feel chipper about their tax cuts. That said, it appears the reaction from low income earners has been fairly muted.

CommSec expects interest rates to be unchanged for the foreseeable future. But the loss of momentum across global economies means central banks are skewed to more accommodative monetary policies.

RYAN FELSMAN is a Senior Economist for CommSec