New home building activity is expected to weigh further on Australia’s GDP growth in the second half of 2020 after already detracting from GDP for the last 18 months prior to COVID-19.
Housing Industry Association Chief Economist Tim Reardon said following this week’s negative GDP result for the March quarter – and the expected negative result for the June quarter – the economy is in urgent need of measures to kick-start post-COVID-19 recovery.
“The persistent decline in residential building activity has detracted from GDP for the last six quarters, and is already 14 per cent down from the peak,” Mr Reardon said.
“Leading indicators show that a sharper contraction in residential building activity is imminent.
“The long lead-times for residential building means that the full impact of the COVID-19 crisis on residential building won’t hit GDP until later in the year.”
Mr Readon said that without appropriate support, up to half a million jobs could be at risk as the number of homes Australians will build next year is expected to be around half of the number of homes we built last year.
“The shock to the economy from the halting of overseas migration, the absence of student arrivals and uncertainty over the domestic economy will see the housing market continue to contract through 2020 and into 2021,” he explained.
“This shock will reverberate through the residential building industry, up and down the supply chain. Employment in the sector is not expected to recover within the next two years.”
The HIA’s claims may come as a shock following news from the ABS that building approvals rose by 7.3 per cent in the three months to April 2020 compared to the previous three months.
But Mr Reardon warned the data released this week relates to projects lodged with local councils well before the impact of COVID-19 conditions.
“Due to the lag between project development and design, submitting an application for a building approval and obtaining an approval, the majority of these projects would have been envisaged at the start of the year or in 2019, when the housing market was gaining momentum,” Mr Reardon explained.
“We do not expect building approvals data to reflect the post-COVID 19 impact until August.”
Detached house approvals were 1.5 per cent higher in the three months to April 2020 compared to the previous three months, and 0.3 per cent higher than the same time last year.
Multi-unit approvals increased by 16.0 per cent in the three months to April 2020 compared to the previous three months and are 1.5 per cent higher than the same time last year.
All states recorded a monthly increase in approvals with the exception of New South Wales which declined by 29.9 per cent during April driven by a fall in multi-unit approvals.
In seasonally adjusted terms, building approvals for the three months to April 2020 quarter increased in Tasmania (+18.4 per cent), New South Wales (+10.9 per cent), Western Australia (+10.4 per cent) and Victoria (+9.3 per cent). Approvals declined in Queensland (-1.4 per cent) and South Australia (-2.5 per cent). In trend terms, the Northern Territory increased by 28.2 per cent and the ACT increased by 18.7 per cent.