Australian house prices may have peaked, but construction will boom into 2016

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House prices in Sydney and Melbourne increasingly look like they have peaked. But that doesn’t mean Australia’s housing construction boom is ending.

That’s the message from Lindsay Partridge, managing director of Brickworks, one of Australia’s leading providers of building products.

Partridge told the AFR that for the first time in a decade the company has kept all its factories running over the Christmas period. That’s after Brickworks reignited dormant factories during 2015 to keep up with demand for product.

He’s excited about 2016.

“The pipeline is full and we see a solid year’s work in front of us. There’s no question about being busy…I know [this year] is going to be good,” Partridge said.

Partridge’s story is important in understanding the impact of aggressive intervention of the Reserve Bank and Australia’s prudential regulator, APRA, in the investor lending market in 2015.

That’s because part of Australia’s necessary economic transition after the mining investment boom was a housing construction boom which would take up economic slack, employ displaced workers from the mining boom and address the deficit of housing supply during the mining boom years.

But, an investor-fuelled house price boom was never part of the Reserve Bank’s policy prescription when it lowered rates twice to 2% in early 2015.

The good news is that while investor demand for credit has fallen, the slack is being taken up by owner occupiers.

Brickworks’ Partridge highlighted this noting that, “in NSW we had a very long downturn and that will take a long time to build out…there is underlying demand there.”

The news that prices and construction may be disconnecting and demand for dwellings remains strong suggests that the economy will continue to benefit from the positive economic impact that houses, and the associated purchases to furnish them, have as an addition to economic growth and domestic demand.

You can read the AFR story here.

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