Growing risk of housing downturn, warns asset manager

Altair Asset Management chief economist Stephen Roberts says the boom in construction of high density housing in the south-eastern states of Australia is “refusing to die for the time being” even amid a growing list of factors that “should be bringing the market to its knees”.

“Extension of the home unit building boom implies that home building activity may contribute positively to economic growth through to early-2017, but there is also a growing risk in our view that the price of this extension is increasing over-supply in pockets of the housing market and a more pronounced and extended housing downturn from mid-2017 and through 2018 detracting from growth and possibly increasing the risk of recession,” Mr Roberts said.

Housing data from the ABS for May and June showed approvals to build private multi-occupancy housing units fell respectively 8.3 per cent and 5.5 per cent, but have since rebounded by 23.0 per cent in July. This led to an 11.3 per cent lift in total home building approvals in the same month.

According to Mr Roberts, this is a particularly volatile statistical series, but even so the lift in home building approvals has lifted totals for the month very close to the heady monthly high reading around 21,000 (annualising above 250,000) back in early 2015.

“Private sector multi-occupancy home units approved in July at 11,393 were the second highest on record and were up more than 15 per cent compared with July 2015,” he noted.

“The surge in multi-occupancy home building approvals in July, assuming (and it is a big assumption) that they translate to home units under construction over the next few months will add to a housing market already showing signs of over-supply.”

If home building approvals hold close to the July total they would run close to 80 per cent of growth in Australia’s population — more than 100 per cent in hot spot construction areas of Brisbane, Melbourne and Sydney, according to Mr Roberts, who warns that “at some point, over-supply will cause prices to fall to help supply and demand for multi-occupancy units to come closer to balance.”

“Very near-term the impact of the latest RBA rate cut in early August and possibly another later this year could prompt even more late-cycle housing demand and supply but that looks to us like the final straw for the housing boom.”

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