Housing won’t continue to support economy

Adam Smith 15 August 2016

house jengaThe housing market is hitting its peak, according to major bank economists.

ANZ economists Daniel Gladwell and Felicity Emmett have forecast that the housing sector will no longer continue to drive the Australian economy, the Australian Financial Review has reported. Gladwell and Emmett said regulatory tightening on investors, taxes introduced to curb foreign investment and apartment oversupply in Melbourne and Brisbane could drag the sector down, the AFR reported.

The economists said demand for new homes was set to fall from “a broad peak”.

"Construction activity is also expected to moderate," they said. "Building approvals remain below last year's peak, suggesting that the rapid growth in starts and work done is unlikely to be sustained,” they said.

But they predicted that a “tremendous backlog” of construction projects would continue to keep home building “around record levels”.

Moves to stem foreign investment could also impact demand, ANZ said, though they conceded there was little evidence of demand tapering.

The bank also said an increase in vacancy rates was slowing rental growth, and that supply from current construction projects was likely to keep a lid on rents into the future, the AFR reported.

"Given soft rental cost growth, and strong house price growth over the past year, it has become increasingly more affordable to rent, rather than buy.”

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