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BFCSA: More than the RBA: NAB expects 18pc decline in housing investment

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More than the RBA: NAB expects 18pc decline in housing investment

Australian Financial Review Apr 17, 2019 6.03am

Michael Bleby


Australia's decline in housing new investment is likely to be twice as deep as the Reserve Bank expects, with a dip close to 20 per cent over the next two years, National Australia Bank says.

While the decline will still leave home-building - which has surged in capacity over the population-driven boom of recent years - above its previous trough, it would still be worse than policymakers expected, NAB chief economist Alan Oster said on Tuesday.

NAB's forecast of an 18 per cent decline in new housing investment over two years is not new - the bank made it in February. And while the lower house price expectations the bank published last week for Sydney homes increased the downside risks, NAB maintained its forecast, Mr Oster said.

"We haven’t really taken an axe to our previous forecasts," he said. "There’s enough damage already being done."

But that damage became apparent last week, with official figures showing new attached home construction starts falling at their fastest rate since the first oil shock in 1973, and the industry is likely to take time to recover. Reserve Bank governor Philip Lowe in February said he expected a 10 per cent decline in housing investment over the next two and a half years.

Mr Oster said the central bank's view of a fall this year and then stabilisation next year was unlikely.

"We have the fall happening now and bigger," he said.

"It goes 10 per cent this year but we also have 10 per cent next year as well."

One driver of lower housing investment is falling housing prices.

"When house prices fall, people go out to Bunnings and renovate, they don’t go and buy new houses," Mr Oster said.

The latest CoreLogic figures for March show Sydney dwelling values have fallen 13.9 per cent since their peak in July 2017, while Melbourne's property market was down 10.7 per cent from its peak a few months later in November 2017. Overall, the pace of decline slowed in March.

"If you were an optimist you could say the rate of decline is slowing, but it got here quickly," Mr Oster said.

Even though the peak-to-trough price declines - which NAB puts at 20 per cent in Sydney and 15 per cent in Melbourne - are likely to have worked their way out by the end of this year, it would take much longer for housing investment start picking up again, he said.

"Probably the other side of 2021, maybe 2022," Mr Oster said. "These things take time."

Despite a blip in February, new housing approvals for high-rise dwellings are likely keep declining, economists said.


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