In a recent address to the Urban Development Institute of Australia (UDIA), head of the Reserve Bank of Australia’s (RBA) Economic Analysis Department, Alexandra Heath, noted that while the housing market has had a positive contribution to economic growth in the past few years, the trend is unlikely to continue.
“Dwelling investment has gone from making a positive contribution to growth two years ago to being roughly flat over the year to March,” Ms Heath said.
“In terms of our forecasts, dwelling investment is not expected to contribute much to growth over the next couple of years, but is expected to remain at a high level.”
However, Ms Heath stressed that shifts in housing market conditions are varied across the country, noting that there have been “distinct differences” in dwelling investment activity on a state level.
“One point of difference across states has been the timing of dwelling investment cycles,” the department head said.
“For New South Wales and Victoria, the level of dwelling investment has been broadly stable at a high level since 2016. In contrast, there has been a decline in higher-density construction in Queensland since early 2017.
“In Western Australia, residential construction peaked in mid-2015, which was well after the end of the mining boom.
“These differences highlight the fact that there are different demand and supply forces at work across the states.”
Further, despite slowing housing market conditions, Ms Heath expects population growth to continue driving “high levels” of dwelling investment.
“On the supply side, the pipeline of residential construction that has been approved but not completed remains high in New South Wales and Victoria,” Ms Heath said.
“There is also a reasonable pipeline of work in Queensland, although it has already started to decline.
“Based on recent approvals data and expected demand conditions, this suggests that dwelling investment in New South Wales and Victoria will remain at a high level for a number of years.”
The RBA analyst also linked falling home values to changes in population growth across the states, with the exception of NSW and Victoria.
“Over the past five years, housing price growth has been subdued in Brisbane and Perth,” the analyst added.
“This is consistent with the fall in population growth coinciding with an increase in the supply of housing.
“In contrast, housing price growth has been strong until recently in Sydney and Melbourne, where population growth has been strong.”
Ms Heath noted that the RBA will be closely monitoring changes to housing market activity, with households increasingly depending on growth in the property market for their overall wealth.
“Given that housing accounts for around 55 per cent of total household assets, we are paying close attention to these developments.”