Things are looking good for the housing sector with affordability at it’s strongest in since 2002 and a 6.8 per cent rise in home building work.
It appears that mining investment has handed the baton to housing construction in the race for economic growth.
Total construction work done bounced in the first three months of the year, thanks to a 6.8 per cent surge in residential construction, official figures showed.
Adding to the good news, a Housing Industry Association report showed that housing affordability is the best it has been in more than a decade, thanks to record low interest rates.
Affordability was almost 11 per cent more favourable in the March quarter than it was a year earlier, according to a HIA/Commonwealth Bank Index.
HIA senior economist Shane Garrett said residential price rises are slowing but a stable interest rate outlook is also helping affordability.
The Reserve Bank of Australia has said on a number of occasions that it won’t be increasing the cash rate for a while and most economists aren’t predicting a hike until next year.
“As home price pressures ease off, we expect home owner affordability to remain reasonably favourable for the foreseeable future,” he said.
The figures showed affordability had improved in Sydney and Perth but deteriorated in Adelaide, Hobart and Brisbane and remained flat in Melbourne.
JP Morgan economist Ben Jarman expects a housing boom to take over from the mining investment boom of recent years.
“The outlook for construction work this year, and next, can be briefly summarised as housing good, mining bad,” he said.
“Accumulated strength in building approvals – growing at over 20 per cent annually – is finally starting to show up in the official construction work data.”
Total construction work done rose by a better-than-expected 0.3 per cent in the March quarter, after a 1.1 per fall in the December quarter, Australian Bureau of Statistics figures showed on Wednesday.
The figures were weighed down by a 1.6 per cent fall in engineering work, which includes mines, roads, bridges.
CBA Economics’ Gareth Aird expects further increases in residential construction.
“A lift in dwelling investment will absorb some of the job losses from the mining capex downturn,” he said.
“And a lift in housing supply will also help slow the acceleration in house price growth observed over the past year.”
JP Morgan said the construction done data will be broadly neutral for the next week’s March quarter gross domestic product figures.
He said the drag in business investment is likely to be offset by the increase in residential investment.
National Australia Bank senior economist David de Garis said the GDP figures could be a little stronger that previously expected.
“Dwelling investment will be strong but other investment will be soft and consumption will be okay but net exports will be the big contributor in the quarter,” he said.