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Housing affordability Federal Budget 2017

There might be plenty of commentators offering doom and gloom on the property front, but reality is being stubbornly resistant. There are a couple of underlying developments that are really positive buried in this week’s reports on April building approvals and the March quarter business investment.

In building, we’ve known apartments and other non-house dwellings have been coming off for some time. There has been a looming glut of apartments in Sydney, Melbourne and Brisbane, which has helped send house prices lower, helped by the crackdown on dodgy interest-only lending. But on a trend basis, Australian Bureau of Statistics data from Wednesday shows that the number of private houses approved in April (10,412) was the highest monthly figure since October 1999, while the seasonally adjusted figure of 10,446 was the highest since April 2015.

We don’t know how many new private house approvals are so-called “spec” houses financed by builders on the chance of selling it to new home buyers during the project, how many are due to investment, or how many are due to actual financed orders from buyers. The housing finance data next week for April will give us a better idea.

However, approvals for commercial properties such as offices slipped for a second straight month in April, down 4%. They are down nearly 20% in the last 12 months — but that will please the Reserve Bank, because traditionally commercial property is where any problems in property first appear for the banks, not housing. 

And like the building approval figures, yesterday’s March quarterly private sector investment data was better than many reports suggest. According to the ABS, March quarter capex rose by 0.4% in seasonally adjusted chain volume terms from the December quarter, missing bullish market forecasts for an increase of 1%. Actual investment rose 3.7% in the 12 months to the end of March. It’s a solid result.

The sixth estimate for the current financial year was revised up to $117.5 billion, 2.8% higher than the figure offered a quarter earlier, and 3.6% higher than the same estimate for the 2016-17 financial year.

The ABS capex report only covers around 60% of total business investment, excluding spending from industries such as agriculture, health and education, and many very small businesses. That means it only provides a partial indicator on total investment. But investment on plant, machinery and equipment — which will feed into the March quarter National Accounts and GDP report out next Wednesday — jumped by 2.5%, and will add to 0.4% contribution from retailing in the quarter).

There was also another rise in expected investment in 2018-19. The second estimate for 2018-19 rose 5.7% to $87.7 billion from the first estimate. It was also 1.4% higher than the second estimate of 2017-18.

Expected expenditure from “other selected industries” — predominantly Australia’s services sector — rose to $53.9 billion, an increase of 5.2% on that indicated three months earlier. Investment intentions among manufacturers also increased, lifting 2.5% from the first estimate to $7.06 billion. Combined, expected spend from Australia’s non-mining sectors next year are forecast to rise to $61 billion. Expected mining spending rose a solid 7.7% to $26.8 billion. And all without a company tax cut!

That expected increase in investment next year will come on top of a boost to demand from the Fair Work Commission. This morning it approved a solid increase in the national minimum wage next financial year of 3.5% — that compares to the 2.1% annual rise in the wage price index in the year to March, and will help boost WPI in the first half of 2018-19.

It’s not the kind of big boost that the ACTU has been campaigning for, but at the moment it’s the only active thing anyone is doing about wage stagnation in Australia.

Peter Fray

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