Homes. The three largest semi-detached house would cut back their spending, residential property THE TIMING OF builders were: Impact Group Aus Pty Ltd, Phillip prices would ease and building activity would HOUSING CYCLES HAS Usher Constructions and ABN Group. Dyldam follow suit. The Reserve Bank of Australia (RBA) TYPICALLY COINCIDED Developments was the number one multi- would anticipate easing inflationary pressures WITH BROADER unit builder, followed by Multiplex and Meriton and cut the official cash rate as a means of ECONOMIC CYCLES Apartments. stabilising economic activity. Back in the days In a sign of the strong year that the industry when mortgage rates were essentially pegged to experienced last year, the Housing 100 ‘biggest the RBA cash rate, the lowering of interest rates movers’ list had fourteen entrants, each increasing provided direct support for the housing market and their housing starts by 100 homes or more. Nine of residential building. these companies increased their housing starts by This time around the housing cycle has 200 homes or more. decoupled from the broader economic cycle. The So what will 2018/19 hold for the nation’s largest downturn is actually occurring at a time when builders? Conditions are unlikely to be as buoyant Australia’s broader economic growth is beginning as they were last year and the industry is likely to to strengthen. In the context of this and APRA’s have worked through the backlog of presales that efforts to rein in the recent escalation in household accumulated during 2016 and 2017. debt, the RBA is unlikely to be compelled by the The Australian Prudential Regulation Authority deterioration in the housing market to cut rates. (APRA) interventions in credit markets, along with The residential building industry has always the banks reacting to concerning revelations during been cyclical and the tailwinds that have driven Royal Commission hearings mean that households activity to all-time highs are now waning. This are able to borrow less than in the past. Home aspect isn’t too different from downturns that prices are adjusting downward to reflect buyers’ the residential building industry has endured in capacity to borrow. Investors are responding to the the past. Conditions for residential building will declining prices by withdrawing from the market become more challenging in the years ahead but even further (they were already stepping back after the stronger trajectory for economic growth and a APRA directed banks to limit interest-only lending). healthy rate of population growth should result in a The timing of housing cycles has typically relatively modest cyclical downturn. coincided with broader economic cycles. In a typical economic downturn, growth would slow, labour Purchase the HIA-COLORBOND steel Housing® market conditions would weaken, households 1002017/18at www.hia.com.au/shop THE 2017/18 FINANCIAL YEAR WAS ONE OF THE STRONGEST ON RECORD FOR DETACHED HOUSE BUILDING NOVEMBER 2018 HOUSING 43 INFOCUS • ECONOMICS