Today’s ABS data on dwelling unit commencements, showing strong growth in housing construction, is further evidence that the Reserve Bank got its timing right when it decided to start reducing the intensity of the emergency monetary policy assistance it was providing the economy.

In seasonally adjusted terms, new private housing starts leaped nearly 10% in the September quarter, fuelled by the first home-owners’ boost, which started winding back in October but that will still provide additional assistance for first-time purchasers of new homes until the end of the year, with a commencements tail well into next year.  Non-housing dwelling commencements also increased by 9%.  In trend terms, new homes were up nearly 5%, although non-home dwellings were down by 4.3%, reflecting, as today’s RBA minutes show, the difficulty for private developers in attracting finance.

The September quarter also showed the first real fruits of the federal government’s stimulus package investment in social and defence housing.  After a small rise in the June quarter, public housing increased by more than 100%, especially in non-housing starts, which nearly trebled.  This discredits claims in the right-wing media that the stimulus package had failed to produce any new public housing, particularly in Queensland where there was a trebling of public dwelling commencements.

The Reserve Bank might have been slightly concerned at yesterday’s lending data, which showed housing and commercial finance flat in trend terms October, and falling in seasonally adjusted terms, especially commercial finance.  While recent interest rate rises off emergency lows pose less of a threat to housing finance, the impact on commercial lending for small and medium businesses that can’t raise capital on the sharemarket is of particular concern.  But the RBA’s minutes from its meeting a fortnight ago suggest it is relatively relaxed about the flat-lining of commercial finance, on the basis that businesses are playing down debt or raising money internally rather than seeking and failing to obtain finance from a less-competitive finance market.  A buoyant residential construction sector — one of the biggest-employing sectors in the country — also confirms the impression from last week’s employment data that we’ve seen the worst of unemployment already, even if key job-generators such as  small business are struggling to expand through lack of capital or are consolidating their balance sheets.

It will also help address the bank’s longer-term concern — articulated by governor Glenn Stevens — that housing is an area of key public policy concern for Australia, but there’ll need to be an extended period of this sort of growth to assuage the bank’s concerns on that front.  And that requires substantial reform at the state and local government level, not first home-owner handouts, to achieve.

Peter Fray

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