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New housing supply decline impacting economy at large

By Sasha Karen 07 March 2019 | 1 minute read

New analysis of Australia’s gross domestic product figures show that the softening being seen in residential building activity is harshly affecting the overall economy.

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Analysing ABS’s data on Australia’s GDP, Geordan Murray, senior economist at the Housing Industry Association, said the decline being felt in the new housing pipeline is spreading into GDP growth, with new home building activity declining by 3.6 per cent and home renovation activity declining by 3.1 per cent in the December quarter of 2018.

Despite activity being higher year-on year, this impact had been expected for a while, Mr Murray said.

“Leading indicators of residential building activity gave fair warning that this result was coming. Sales of new residential lots, new home sales, building approvals and housing finance all deteriorated quite significantly during the latter stages of 2018,” Mr Murray said.

“The tightening in the lending environment made life difficult for would-be buyers, while domestic and overseas investors had already retreated from the market.


“Despite the decline in activity during the latter half of 2018, there is a large amount of residential building work to be done on projects that are still under construction, but the pipeline of new projects is not as abundant as it once was.”

Mr Murray also said that once existing projects are completed, the pipeline of new supply is expected to diminish, moderating from record-highs.

“Over the next few years residential building is forecast to continue easing back from the record-high levels achieved over the past couple of years and will continue to be a headwind for economic growth as this cycle unfolds,” Mr Murray said.

“An orderly downturn will be dependent on the resilience of the broader economy. It is promising that public sector investment contributed to growth, but the household sector holds the key. Growth in household consumption continues to underwhelm.”

What needs to be done?

In order to fix this decline in GDP growth, Denita Wawn, CEO of Master Builders Australia said that both of the major political parties need to focus their policies on economic growth.

“Australians know that we need strong economic growth to boost living standards, provide jobs and provide the certainty and incentive for business to keep investing,” Ms Wawn said.

“As the nation’s second largest industry, building and construction is already a major driver of growth in the economy but worryingly, a number of components of the economy actually shrank during the quarter including new home building activity, home renovations and commercial and civil construction.

“We want both major parties to show their commitment to an economic growth at the upcoming federal budget so that the slide can be halted and the policies for a new period of economic growth delivered.

Ms Wawn added that construction needs to be the centrepiece of economic recovery due to being “the economy’s largest provider of full-time jobs”.

“We want to see more shovel ready infrastructure projects out the door for construction to commence not just languishing on lists,” she said.

“We want policies that will actually increase the construction of new homes and jobs in the residential building sector rather than taking them backwards.

“Stimulating building activity not only boosts demand over the short term. Well-targeted construction projects would expand the economy’s creative potential for decades to come.”

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New housing supply decline impacting economy at large
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