With housing mortgage rates at an 11-year high, home lending running at a 9-year low and the worst single month for building approvals outside GST-influenced 2000, you would have thought the media would have been all over the yesterday’s decision by Brickworks Ltd to cut production in NSW by 100 million bricks a year. And yet it was just a business story, done perfunctorily without any recognition of the context.

In another indicator of growing gloom, today’s Roy Morgan Consumer Confidence Rating is at a low 115.8, down 2.8 points from January and 8 points below the February 2007 result of 123.8. The key factor in this fall is an increase in the number of Australians who expect “bad” economic conditions in Australia in the next year – now 30% (up 17% since December 2007) – while 36% (down 2%) expect “good” economic conditions in the next 12 months. Just 46% (down 6%) of Australians consider now a good time to buy major household items – the lowest result since December 2006 – while 23% (up 3%) say now is a bad time to buy.

That sentiment appears to be manifesting in housing. Brickworks is the biggest brickmaker in the country and it says the decision to mothball two kilns at its big plant in Sydney’s western suburbs will mean 10,000 houses a year will not be built in the state. It has grown tired of waiting for the long-forecast upturn to come.

Macquarie Bank was on that tack this morning, claiming that the rising price of existing houses would lift new home building. But not according to Brickworks, judging by its announcement yesterday.

The CEO, Lindsay Partridge, said the downturn in housing NSW “can only be compared to the downturns of WW11 or the Great Depression … Further interest rate rises and poor weather have resulted in there being no signs of house sales improving in NSW”.

The company said in its statement that it will mothball two kilns at its Horsley Park complex in Sydney in response to a reduction in demand for bricks in the state.

This raises another question — has the RBA lost its most important measure of when monetary policy starts working: the level of demand for housing? If anything, November’s interest rate rise and other rate rises for non-bank lenders (and their withdrawal from sections of the home lending market) played a part in the very sharp fall in December.

If the fall in approvals continues into this year, then the bank might normally conclude the higher rates are working. (Housing finance figures for December next week will be another important indicator to watch.) But the reality is that the bank’s rate rises will not have an impact on oil and petrol prices, on the strength of demand for scarce resources and labour from the mining and resources industries and many suppliers, nor will it have an impact on the housing industry, except to push up the cost of housing and rents.

In fact the Brickworks decision would normally be taken by the bank as an indicator that its tightening monetary policy was having an impact and could be taken as a sign of a rate cut might be coming.

But it’s not: housing is sluggish and it’s the strong resource industries that are causing much of the problem, and they are beyond the bank’s reach.

UBS pointed out this week that the downturn in December in private housing approvals was the worst on record, if the GST-induced falls in the last half of 2000 were excluded. UBS also pointed out that alterations and additions fell in December to complete three months of declines, another sign that the rate rises are working and housing is coming off.

Macquarie Bank this morning said the housing figures were indeed poor, but wondered if they would be revised upwards in coming months with the result that there were no real problems.

But that’s sounds like faint hopes.

Peter Fray

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