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Why housing won't help the Australian economy's rebalancing act; ABS 8731.0 - Building Approvals, Australia, June 2014
Topic Started: 31 Jul 2014, 02:03 PM (1,855 Views)
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ABS Data: http://www.abs.gov.au/ausstats/abs@.nsf/mf/8731.0

Dwelling units approved
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Private sector houses approved
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JUNE KEY POINTS

TOTAL DWELLING UNITS

The trend estimate for total dwellings approved fell 1.1% in June and has fallen for six months.
The seasonally adjusted estimate for total dwellings approved fell 5.0% in June following a rise of 10.3% in the previous month.

PRIVATE SECTOR HOUSES

The trend estimate for private sector houses approved fell 0.4% in June and has fallen for three months.
The seasonally adjusted estimate for private sector houses fell 2.2% in June following a rise of 1.4% in the previous month.

PRIVATE SECTOR DWELLINGS EXCLUDING HOUSES

The trend estimate for private sector dwellings excluding houses fell 2.5% in June and has fallen for seven months.
The seasonally adjusted estimate for private sector dwellings excluding houses fell 10.5% in June following a rise of 26.7% in the previous month.

VALUE OF BUILDING APPROVED

The trend estimate of the value of total building approved fell 2.6% in June and has fallen for seven months. The value of residential building fell 0.5% and has fallen for six months. The value of non-residential building fell 7.1% and has fallen for seven months.
The seasonally adjusted estimate of the value of total building approved rose 3.7% in June and has risen for two months. The value of residential building fell 3.7% following a rise of 14.7%. The value of non-residential building rose 17.9% and has risen for two months.
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Ollie
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These ABS dwelling approvals for the month of June show at the national level the number of dwelling approvals fell by a seasonally adjusted 5.0% to 15,659. The overall fall was broad-based, with the volatile unit and apartment segment falling by 10.5% and the more stable house approvals segment falling by 2.2%. The result disappointed analysts’ expectations, who had expected a flat result over the month.

In the year to June 2014, dwelling approvals rose by a seasonally-adjusted 16.0%, with house approvals up by 13.1% and unit approvals up by 23.2%:

Dwelling approvals nationally appear to have topped-out, with unit & apartment approvals retracing sharply from recent record highs and house approvals falling more moderately.

In annual terms, dwelling approvals are near record highs, with the 193,665 approvals recorded in the year to June 2014 just below the 194,236 approvals recorded in the year to October 1994. This time, however, unit & apartments have led the way, with detached house approvals merely running in-line with the 30-year average. Moreover, as noted previously, approvals remain fairly depressed in population-adjusted terms, given that Australia’s population has grown by around 45% over the past 30-years.

This month’s slump in approvals was driven by Queensland (-11%%) and the Northern Territory (-70%). New South Wales (-2%), Western Australia (-3%), South Australia (-4%), and Tasmania (-9%) also recorded falls, whereas approvals rose in ACT (+1%) and Victoria was flat.

Dwelling approvals have slowed across the board.

The next few month’s data will be vital as it will confirm whether the mini construction boom is running out of gas, pointing to a potential weakening of housing construction activity in 2015 just as the mining investment cliff intensifies.
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Even if supply were prove effective in bringing down prices, it would be the MOST EXPENSIVE and SLOWEST way to achieve such an outcome.

Housing long ago became a speculative financial asset in this country. Rising prices bring rising demand. Think about it.

Push out the supply curve, what happens to price? Sweet FA, it may even go up.

Housing can also be considered a status good, or a positional good, also upward-sloping demand curves.

The Economics 101 approach to supply-demand analysis doesn’t even go close to explaining the true dynamics of the housing market.

Supply is a massive distraction from the true causes of the problem, and a very useful diversion for those who seek to avoid policies that would have a real impact on the bubble.
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Why housing won't help the economy's rebalancing act

Callam Pickering, 31 Jul, 1:11 PM

Building approvals continue to decline but residential investment should provide some support to the broader economy over the next few years. Nevertheless, residential investment remains only a small share of real GDP and cannot be expected to the do the heavy lifting as our economy rebalances.

Building approvals fell by 5.0 per cent in June, missing market expectations, to be 16.0 per cent higher over the year. This partially offset by strong growth last month and reflects a continuation of the downward trend over the past six months.

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Approvals for housing, which have historically been less volatile, have peaked and have declined modestly over the past three months on a trend basis. Approvals for apartments spiked in May but have otherwise been on a sharp downward trend during 2014.

Approvals for apartments also provide a good indicator of investor activity (on those rare occasions that investors purchase new rather than existing properties), so there are growing signs that investor optimism is subsiding. It is a trend worth keeping an eye on and one that might prove important to the broader housing market over the remainder of the year.

From a construction standpoint, apartment projects typically take longer to complete and should support residential investment and the Australian economy over the next couple of years. The main concern though is that these projects are typically far riskier and more likely to be postponed or cancelled if economic conditions slow.

At the state level, data can be particularly volatile in the higher density segment. Single large projects can shift the data around significantly from month-to-month, but approvals continue to decline in each of the mainland states.

The upswing in residential investment should be concentrated in New South Wales, while both Victoria and Western Australia should expect a solid boost to construction. But residential projects in Western Australia might be the most at risk, particularly if the mining sector falls away faster than expected.

Taken at face value, and supported by strong population growth, housing investment will improve significantly over the next couple of years but those expecting construction to drive the Australian economy should probably temper their expectations.

The 2010-11 ‘boom’, during which approvals tracked awfully similar to current trends, saw residential investment rise only modestly as a share of GDP. This episode should last longer, mostly due to the high number of apartments, but it is unlikely to be a big driver of growth over the next couple of years.

The unfortunate reality is that housing construction is hopelessly outgunned as we try to rebalance our economy away from mining investment.

Mining investment is set to fall sharply over the next couple of years and could punch a hole in the economy worth around 4 to 5 per cent of real GDP. That may, in fact, prove to be an optimistic estimate. It has become increasingly obvious that mining firms over-invested during the boom, with new production flooding the market, reducing prices and cutting margins.

Most of the heavy lifting will be done by household spending and exports; residential investment will be nothing more than a supporting player.

Unfortunately household spending has slowed significantly throughout 2014 and continues to suffer from declining real wages and a subdued labour market. The outlook for exports is much brighter but will be weighed down by lower commodity prices and is almost completely reliant on the continued success of the Chinese economy.

Low interest rates continue to support the housing sector and construction has picked up as expected. But the Australian economy needs more than just a vibrant housing sector for growth to return towards trend. The household sector needs further relief and the export sector would benefit greatly from a lower dollar. In my view that necessitates an interest rate cut sooner rather than later.

Read more: http://www.businessspectator.com.au/article/2014/7/31/australian-news/why-housing-wont-help-economys-rebalancing-act
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Jimbo
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1 Aug 2014, 02:14 PM
Even if supply were prove effective in bringing down prices, it would be the MOST EXPENSIVE and SLOWEST way to achieve such an outcome.

Housing long ago became a speculative financial asset in this country. Rising prices bring rising demand. Think about it.

Totally with you there. Housing is a speculative asset and that is the main driver of price. The fact that Australia subsidises investor speculation with NG and CGT discounts is the reason we have some of the most expensive property on the planet.
There is plenty of supply, it is just tied up in the hands of retire rich "investors".
Matthew, 30 Jan 2016, 09:21 AM Your simplistic view is so flawed it is not worth debating. The current oversupply will be swallowed in 12 months. By the time dumb shits like you realise this prices will already be :?: rising.
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peter fraser
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Jimbo
1 Aug 2014, 05:42 PM
Totally with you there. Housing is a speculative asset and that is the main driver of price. The fact that Australia subsidises investor speculation with NG and CGT discounts is the reason we have some of the most expensive property on the planet.
There is plenty of supply, it is just tied up in the hands of retire rich "investors".
If indeed there was plenty of supply the prices would be stagnant and not rising as they clearly are.
Any expressed market opinion is my own and is not to be taken as financial advice
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Drgonzo
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peter fraser
3 Aug 2014, 10:15 AM
If indeed there was plenty of supply the prices would be stagnant and not rising as they clearly are.
if an economy driven by a domestic housing market is all we have to offer, then I think the game is up
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goldbug
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Jimbo
1 Aug 2014, 05:42 PM
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1 Aug 2014, 02:14 PM
Even if supply were prove effective in bringing down prices, it would be the MOST EXPENSIVE and SLOWEST way to achieve such an outcome.

Housing long ago became a speculative financial asset in this country. Rising prices bring rising demand. Think about it.

Totally with you there. Housing is a speculative asset and that is the main driver of price.
You could imagine the same effect in the car market if suddenly 50% of all cars sold went to investors wanting to rent them out. The end dynamics are different but the effect on prices would be the same. Investors have bid up the market to a point where they even find it too expensive.

I was down in brisbane the other day picking up purchase off gumtree and the house had a for sale sign up with sold stamped on it. It was an odd place with 2 driveways and a big central staircase up front. Turns out it was a duplex of all things. A highset weather board one in greenslopes. I paid him for the equipment and we got talking, he was moving from the rat race up country like I did.

Did you get the price you wanted I asked? Almost he said. I said it looked like an investors dream, two homes basically on a single set of rates. He said that what the RE mob had told him but all the investors came in with ridiculous low offers. I think the majority of investors buying now are the total dregs of the barrel, they're getting shunted into newbuild where they are guaranteed a great rental return from the builders (for a year or two) and no maintenance for decades. As if :lol
Shadow was hopelessly wrong about the Gold Bull Market.
What else is he wrong about?
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Jimbo
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goldbug
3 Aug 2014, 11:37 AM
You could imagine the same effect in the car market if suddenly 50% of all cars sold went to investors wanting to rent them out. The end dynamics are different but the effect on prices would be the same. Investors have bid up the market to a point where they even find it too expensive.

I was down in brisbane the other day picking up purchase off gumtree and the house had a for sale sign up with sold stamped on it. It was an odd place with 2 driveways and a big central staircase up front. Turns out it was a duplex of all things. A highset weather board one in greenslopes. I paid him for the equipment and we got talking, he was moving from the rat race up country like I did.

Did you get the price you wanted I asked? Almost he said. I said it looked like an investors dream, two homes basically on a single set of rates. He said that what the RE mob had told him but all the investors came in with ridiculous low offers. I think the majority of investors buying now are the total dregs of the barrel, they're getting shunted into newbuild where they are guaranteed a great rental return from the builders (for a year or two) and no maintenance for decades. As if :lol
I will never accept the supply and demand argument until we have families walking the streets unable to find a roof to put over their heads. In Perth, we have vacancy rates well up on a year ago and rents down slightly. That does not indicate a supply shortage. It is just that the supply is tied up in investor portfolios.

I could go to the only supermarket in town and buy all the bread. I could then set up a stall outside and sell it for double the price. The price hasn't been driven up by lack of supply. It has been driven up by speculation. If I sell more than half of the bread I am in profit. I am not doing the townspeople a service by providing them with bread, I am just ripping them off for my own personal gain.
Matthew, 30 Jan 2016, 09:21 AM Your simplistic view is so flawed it is not worth debating. The current oversupply will be swallowed in 12 months. By the time dumb shits like you realise this prices will already be :?: rising.
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skamy
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1 Aug 2014, 02:14 PM
Even if supply were prove effective in bringing down prices, it would be the MOST EXPENSIVE and SLOWEST way to achieve such an outcome.

Housing long ago became a speculative financial asset in this country. Rising prices bring rising demand. Think about it.

Push out the supply curve, what happens to price? Sweet FA, it may even go up.

Housing can also be considered a status good, or a positional good, also upward-sloping demand curves.

The Economics 101 approach to supply-demand analysis doesn’t even go close to explaining the true dynamics of the housing market.

Supply is a massive distraction from the true causes of the problem, and a very useful diversion for those who seek to avoid policies that would have a real impact on the bubble.
The biggest problem here is that the people who believe in bubblo-economics, would love to think that there is a housing bubble in Australia similar to that observed in a few places eg Ireland, Dubai and parts of the US.

If they believe this they then think that a solution to the problem can be found in a recession with mass unemployment and redistribution of wealth from the young to the rich (ie what has happened in US and elsewhere). This event will apparently just turn up and they can sit on their arses and do nothing.

This then turns activism against real injustices and poverty into a waiting game of doom and gloom fantasyland speculation.

There is no bubble in the Australian market (one may emerge in Sydney a few years down the track).

IMHO bubble-o-dreamland has been a lazy excuse that has avoided any of the real issues being tackled. In fact the opposite new measures to inflate property prices are being proposed. While, the supply backlog caused by the fear-mongering has the potential to increase prices markedly.



Definition of a doom and gloomer from 1993
The last camp is made up of the doom-and-gloomers. Their slogan is "it's the end of the world as we know it". Right now they are convinced that debt is the evil responsible for all our economic woes and must be eliminated at all cost. Many doom-and-gloomers believe that unprecedented debt levels mean that we are on the precipice of a worse crisis than the Great Depression. The doom-and-gloomers hang on the latest series of negative economic data.
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