Housing downturn will be a larger-than-expected drag on economy: RBA deputy governor

MAYBE … but let’s see …

WILL this ‘fall’ happen?

With too many people wanting a slice of the action to depress prices …

EVEN so … why is it that the Liberal Governments appear to put ‘all the eggs in one basket’ … previously with the Mining Sector … now Residential Housing … a consequence of lobbying once again … it seems …

As revealed here ‘Housing is a significant part of Australia’s $1.95 trillion economy, with residential construction accounting for about 2 per cent of total employment and 6 per cent of the country’s gross domestic product (GDP).

DO those percentages indicate to you that ‘residential construction’ is not as significant as it is alleged to be?

Housing downturn will be a larger-than-expected drag on economy: RBA deputy governor

17 OCTOBER 2019

Guy Debelle stands outside the Reserve Bank head office

PHOTO: RBA deputy governor Guy Debelle predicts dwelling investment will fall by 7pc over the next year. (ABC News: Maisie Cohen)

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Australia’s property downturn is not only hitting household consumption, it’s a big drag on economic growth and inflation, according to a senior Reserve Bank official.

It is likely to last for at least another year despite three interest rate cuts, RBA deputy governor Guy Debelle said in a speech on Tuesday.

However, an uptick in home prices in recent months, steady population growth and all-time-low interest rates were expected to revive housing construction by 2021, he added.

Housing is a significant part of Australia’s $1.95 trillion economy, with residential construction accounting for about 2 per cent of total employment and 6 per cent of the country’s gross domestic product (GDP).

“Much of the downturn in construction activity is still ahead,” Dr Debelle said in his speech, titled Housing and the Economy.

Home prices and construction activity in Australia peaked nearly two years ago with approvals to build new homes around 40 per cent lower than their late-2017 highs.

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“We are forecasting a further 7 per cent decline in dwelling investment over the next year, and there is some risk the decline could be even larger,” he said.

“This will directly subtract around 1 percentage point from GDP growth from peak to trough.”

Housing also has an impact on consumption. The RBA’s standard estimate of the wealth effect is that a 10 per cent fall in housing prices leads to a 1.5 per cent fall in household consumption over time.

Dr Debelle also noted the recent downturn had a “larger-than-expected” spillover effect on inflation as rents and new dwelling purchases together account for about one-sixth of the consumer price index basket.

In addition, a decline in housing turnover has weighed on “ownership transfer costs” such as stamp duties and fees paid to real estate agents and lawyers.

These costs are down more than 20 per cent over the year to the March quarter, shaving around 0.5 percentage points of GDP.

“We had not fully taken account of this in our forecasts of GDP and it is part of the explanation of why GDP growth has turned out to be slower than we had expected,” Dr Debelle said.

Reuters

SOURCE: https://www.abc.net.au/news/2019-10-17/housing-downturn-bigger-drag-economy-rba-guy-debelle/11611038

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