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Housing growth shines a light on economy by Jason Cadden for AAP The housing sector appears to be the only shining light for the economy. New figures show building approvals for homes leapt by a stronger-than-expected 9.9 per cent in May, the biggest rise in nine months. The news from the Australian Bureau of Statistics will be welcomed by the Reserve Bank, which sees housing as one of the key sectors that will power economic growth as the mining investment boom fades. Economists believe the strength in the housing sector could help retailers, who have been struggling with lower sales due to the warm start to winter and consumer worries about the government’s budget spending cuts. Separate data from the ABS showed retail sales fell for a second month in a row, down by a larger-than-expected half
per cent in May. Several retailers including Kathmandu, Noni B and The Reject Shop have warned of sales slumps recently, blaming the warm weather and the budget. The ABS figures showed clothing and footwear sales dropped 2.3 per cent in May, while department store sales tumbled 2.6 per cent. CommSec economist Savanth Sebastian said the sales drop could force retailers to slash prices to entice shoppers to start spending. Some might also benefit from the strength in the housing sector, which has bounced back from three months of declines. ‘On a positive note, the strength in housing activity should support housing-dependent retailers over coming months,’ he said. ‘Low and stable interest rates and the lift in wealth
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levels should support consumer spending and help to partially offset the concerns surrounding the federal budget.’ Australian National Retailers Association chief executive Margy Osmond said consumers had been spooked by the budget and its proposed cuts to family benefits. ‘With many aspects of the budget facing a battle to get through the Senate and ongoing uncertainty, we wouldn’t expect retail sales to bounce back for a few months yet,’ she said. JP Morgan economist Ben Jarman said strong retail spending over Christmas was never going to be sustained. But he believed the RBA would be ‘pretty comfortable that housing is going to do fine’. ‘The annual rates in building approvals have passed their peak but the levels are consistent with dwelling investment being one of the more positive
contributors to growth this year and probably into next year,’ he said. ‘There remain decent gains for home-building in the pipeline for the remainder of the year.
Sydney [AAP] Home building approvals have posted their strongest monthly gain in eight months, a sign the housing sector will be the main driver for the economy when mining investment fades. Approvals for the construction of new homes rose 9.9 per cent across Australia in May, official figures show, better than the 3.2 per cent rise economists had been expecting. Over the 12 months to May, building approvals were up 14.3 per cent.
CommSec economist Savanth Sebastian said the housing sector will be the main highlight for the Australian economy over the next 12 months. ‘There’s signs of consolidation but it’s still strong in terms of new construction activity and that’s the key,’ he said. ‘You’ve got building approvals which are solid, new home sales easing off four-year highs but certainly the fact that construction loans remain relatively upbeat is a good sign.’
He said the boost in housing construction will increase supply and keep housing prices from rising too fast. ‘All this seems to point to rates on hold and even the potential that the RBA could deem another rate cut necessary if this trend continues.’ Approvals for private sector houses rose 0.5 per cent in the month, and the ‘other dwellings’ category, which includes apartment blocks and townhouses, was up 27.2 per cent.
JP Morgan economist Ben Jarman said it was the first rise in building approvals in three months, but the overall trend for building approvals is up. ‘I think the RBA [Reserve Bank of Australia] is pretty comfortable that housing is going to do fine,’ he said. ‘The annual rates in building approvals have passed their peak but the levels are consistent with dwelling investment being one of the more positive contributors to growth this year and probably into next year.’
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‘All this seems to point to rates on hold and even the potential that the RBA could deem another rate cut necessary if this trend continues,’ he said.
Building approvals up almost 10% in May
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‘This will at least offset some of the deceleration expected in exports and consumption.’ Mr Sebastian said the boost in housing construction will increase supply and stop housing prices from rising too fast.
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The Byron Shire Echo July 8, 2014 43