The good news is Australia’s economic growth is back around its long-term trend, and the outlook is broadly positive. In particular, ongoing employment growth, (gradually) improving wages growth, and population growth running at well above average levels should support house prices in the medium term.
Elsewhere, the housing construction cycle continues to evolve broadly in line with our expectations.
Housing finance approvals for the construction of new dwellings – which have a well-established leading relationship with building approvals – have rolled over and point to further weakness in building approvals in coming months.
However, a large pipeline of work means residential construction will remain at elevated levels over the year ahead, even though we think momentum is slowing.
At the end of 2017, there were still around 18 months of unit and apartment construction activity in the pipeline, concentrated in Sydney.
ANZ Research expects residential construction to be around 1 per cent lower over 2018 and down 5 to 6 per cent year on year in 2019 given weaker approvals and as the backlog of work rolls over.
It also expects some further slowing in 2020 but is constructive on the medium term given ongoing strong population growth (and following a significant period of under investment).
Daniel Gradwell & Joanne Masters are Senior Economists at ANZ