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Housing construction falling at fastest rate since GST

Housing construction
Cameron Micallef
26 February 2020 — 1 minute read

The number of houses being built has had its most significant fall since the introduction of the goods and services tax (GST), causing the national economy to stall, according to a new analysis from AMP.

According to AMP’s Econosights, the last home price boom (from 2012 to mid-2017) lifted the price by nearly 150 per cent, although the fund managers warn the next upswing will not be as large. 

AMP’s senior economist, Diana Mousina, believes that despite previously strong gains being unlikely, it still provides an attractive investment opportunity for investors.


“Despite our expectations for moderate capital and rental growth in housing nationally over the next few years, the favourable tax treatment of housing in Australia still makes it an attractive investment, especially while bond yields are so low,” Ms Mousina said.

AMP Capital believes a number of factors will stop houses from reaching previous growth cycles as Australians adapt to new levels of debt.

“There are a number of factors [that] will limit home price growth, which include higher household debt-to-income ratios, tighter bank lending standards, more unit supply to enter into Sydney and Melbourne property markets, and a weak economic backdrop,” Ms Mousina said. 

While short-term growth is expected to be around 10 per cent in 2020 over the medium term, houses will grow moderately, according to Ms Mousina.

“After 2020, we expect price growth to be more moderate, around 5 per cent per annum. The lift in home prices is also extending regionally, with moderate gains in Brisbane, Hobart and Canberra. Perth prices are finally stabilising after years of declines, while Darwin prices are still declining,” Ms Mousina said.

Overall, the growth in the housing market is expected to still have an impact on inequality, despite growth slowing in 2021.

“While low interest rates have improved housing serviceability in Australia over recent years, affordability concerns are still an underlying issue, especially in Sydney and Melbourne, and could become an issue when interest rates eventually start rising again,” Ms Mousina said.

The underlying lack of supply, which is helping to grow housing prices, is not just having an impact on the prices of property but the economy at large, AMP’s insights also found.

“The recent housing construction cycle peaked in 2018. Building approvals are now 60 per cent below their 2018 peak levels. At its high, new housing construction accounted for 6 per cent of GDP, and we expect it to bottom at 5 per cent of GDP in mid-2020, which means a total 1 percentage point detraction from GDP growth,” Ms Mousina concluded.

Housing construction falling at fastest rate since GST
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