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What does the slowdown in housing construction mean for investors

Property

After record highs, particularly on the east coast, building activity is slowing down in key capital cities. What does this mean for property investors?

During 2018, $68.7 billion worth of work was done on new homes, which represented a new high for the Australian market.

However, that new construction is now slowing, he said, with ABS data showing the seasonally adjusted estimate of the value of work done on residential properties declining by 3.6 per cent.

The figures also confirm that the volume of activity began to retreat from the peak during the second half of the year. The total value of building work done on new homes declined by 3.7 per cent in the final quarter of the year.

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What now?

“The number of homes under construction will continue to decline throughout this phase of the cycle and the value of building work will decline accordingly,” said Geordan Murray, senior economist at the Housing Industry Association.

“Today’s figures are significant as they provide a good indication that next week’s GDP figures will show that the slowdown in new home building has detracted from GDP growth for the second consecutive quarter,” he said.

“HIA forecasts further declines in home building over the next two years, which will provide a headwind for economic growth,” he said.

Ken Morrison, the CEO of the Property Council of Australia, said the decline in value meant the housing construction cycle is turning, and will show up across the rest of the economy.

“It’s a reminder that now is the wrong time to be changing the policy settings on negative gearing and capital gains tax for property investment,” Mr Morrison said.

“The large amount of building work done is a product of having such a large number of homes under construction during the year.

“Other leading indicators of residential building activity, such as sales of new residential lots, new home sales, building approvals and housing finance all deteriorated quite significantly during the latter stages of 2018,” he said.

The implication of this, Mr Murray continued, is that the pipeline of work on new buildings is slowing down, with completions set to outnumber starts.

What does the slowdown in housing construction mean for investors
Property
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