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Australia's long home-building boom has life in it yet

Published 04/10/2017, 12:38 pm
Updated 04/10/2017, 12:40 pm
Australia's long home-building boom has life in it yet

Australia's long home-building boom has life in it yet

By Wayne Cole and Swati Pandey

SYDNEY, Oct 4 (Reuters) - The latest data on Australia's home building boom is showing something totally unexpected - a revival in borrowing and approvals that suggest a mainstay of economic activity has some way to run yet.

Obituaries were being written for the boom, given it was already in its fifth year and long in the tooth by historical standards. Yet overlooked by mourners has been a surge in Australians borrowing to build their own houses, a shift as unexpected as it is timely.

The value of new loans rose 21 percent in July alone to an all-time high of A$2.2 billion, having climbed for six months in a row. Loans are being created at an annualised rate of 77,000 - harking back to the peaks seen in 2014 when the cycle was in its youth.

That's crucial as loans are a reliable leading indicator of building. Indeed, figures out this week showed approvals to build new homes had started to trend higher again, reversing a steep decline seen late last year.

"Residential building approvals are incredibly resilient," said UBS economist George Tharenou, who has given up trying to call a top for home construction.

"The 'real' side of housing approvals remains stronger than we expected at a still-booming level of 222,000 a year, supporting the overall growth outlook."

Housing is an important element of Australia's growth story, having added half a percentage point to economic growth in each of the last three years. Its health will determine where the economy, and interest rates, are heading.

An eye-catching sign of the pipeline of work is the number of cranes that crowd the skylines of Sydney and Melbourne.

The Rider, Levett, Bucknall index of cranes hit a record high in September, with 685 on projects across Australia. All key cities saw increased crane counts in the past six months.

Construction is already leading job gains, with a record share of workers - 9.5 percent - employed in the sector. It also pays handsomely and might be a factor in lifting wages growth which are crawling at a snail's pace and suppressing inflation.

While there are fears all this building will lead to a glut of housing, that does not take into account population growth which blew past all expectations this year.

Annual growth of 1.6 percent is twice that of the United States and three times that in the UK. Some 232,000 of those are migrants who need to be housed right away.

Tapas Strickland, an economist at National Australia Bank, noted the population aged 15 years and over was expanding at 325,000 a year, which historically was consistent with a need for 216,000 new dwellings year.

"Only time will tell whether the construction cycle will be more extended than first thought, but population growth would argue yes, as would the most recent trend for building approvals," said Strickland.

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