Australia's housing market take-off not helping economy

Sydney

AUSTRALIA'S property market is taking off again, but with few positive economic spillovers.

Take the earnings report of the nation's largest building materials firm Boral, for instance. The brick, cement and plasterboard maker announced weaker results on Wednesday, citing a softer housing market, and said local concrete volumes were down 8 per cent in the three months through September from a year earlier.

That is also the period when home prices in Sydney and Melbourne roared back to life.

For Reserve Bank of Australia (RBA) chief Philip Lowe, the disconnect adds yet another conundrum to grapple with as he seeks to revive growth and rekindle inflation.

He introduced the housing construction cycle into his "sources of uncertainty" to the economic outlook in Tuesday's policy statement explaining the board's decision to keep the cash rate unchanged at 0.75 per cent following three reductions since June.

Building was inserted just after drought - also a new addition - which followed the perennial bugbear of tepid consumption.

Further down the release in the housing market area, Mr Lowe noted new dwelling activity is "still declining," amid otherwise more optimistic news.

Underscoring the scale of the headwind for the economy, the RBA's deputy governor Guy Debelle last month forecast a 7 per cent fall in housing investment next year - with "some risk" of more.

From peak to trough, that'll cut one percentage point from gross domestic product, he warned. The bank estimates that dwelling investment accounts for about 6 per cent of the economy.

"The effect of the downturn in housing construction on the broader economy, though, is likely to be somewhat larger," Mr Debelle said in an Oct 17 speech, noting linkages with services like architects, drafts-people and construction engineers, as well as manufacturing through steel, bricks and so forth.

All this takes place at a time when Sydney and Melbourne housing is back on track: up 5.3 per cent and 6 per cent, respectively, since bottoming in May.

For the RBA, it's the worst of both worlds: buyers forced to take out huge mortgages to get on the property ladder, putting future financial stability at risk, but with no associated jump in housing construction that would buttress the economy. BLOOMBERG