Falling homebuilding activity cripples GDP growth

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Figures from the Australian Bureau of Statistics showed that the drop in residential building activity has hurt GDP growth. The result will also likely lessen the odds of a cut in the next interest-rate decision.

“The decline in expenditure on residential building became a stronger headwind for economic growth in the final quarter of 2018,” said Geordan Murray, senior economist for the Housing Industry Association.

New homebuilding activity declined by 3.6% over the final quarter of 2018, while home renovation activity slid by 3.1%. The activity, though, was still higher than in the same quarter in 2017 despite the slowing at the end of 2018.

Sales of new residential lots, new home sales, building approvals and housing finance all drastically decreased during the latter stages of last year.

The tightening in the lending environment also made it hard for prospective buyers, while domestic and overseas investors had already retreated from the market.

In the coming years, residential building is expected to continue falling from record-high levels and will remain a headwind for economic growth as this cycle unfolds.

“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. The softening in leading indicators suggests that as existing projects reach completion there will be fewer new projects starting,” said Murray.

An orderly downturn will be reliant 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,” said Murray.

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