Australian Housing Growth Won’t Fill Mining Gap, JPMorgan Says

Australian housing investment is unlikely to fill the void left in the nation’s economic growth by a slowdown in the mining industry, according to JPMorgan Chase & Co.

A dearth of first-home buyer activity and a decline in home sales over the past decade mean housing will contribute less to gross domestic product than the losses from a slowdown in mining investment, Ben Jarman, economist at JPMorgan, wrote in an e-mailed report dated today.

“In the context of a very large and disappearing growth contribution from mining capex of around 2 percentage points,” the magnitude of the “upside” from housing falls short, Jarman wrote. “Even in an ambitious scenario, dwelling investment would add only 0.5 percentage points to GDP over 2013. And even in that case, the lags could be such that these gains do not materialize until 2014.”

Banks including Morgan Stanley and National Australia Bank Ltd. forecast home-price growth of less than 5 percent in 2013 after two years of declines, compared with a surge of 11 percent in 2009. The Reserve Bank of Australia in February predicted a “below trend” increase of 2.5 percent for GDP in 2013, down from an estimate of 2.75 percent in November, as mining investment peaks this year and the Australian dollar’s strength weighs on manufacturing and exports.

First-Home Buyers

Demand for housing from first-home buyers remains lackluster, keeping potential purchasers up the chain from taking on more debt and boosting credit growth, Jarman said. Lack of new construction has pushed dwelling investment as a proportion of GDP down by 1.5 percentage points in the past decade, he wrote.

First-home buyers accounted for 14.4 percent of all home loans in February, compared with 17.4 percent a year earlier, according to the statistics bureau. Building approvals rose a seasonally adjusted 12.8 percent in the 12 months to Feb. 28, government data show.

“To bank on dwelling investment making a large contribution to GDP is therefore to bet against a clearly defined trend,” Jarman said. Building approvals would have to rise 20 percent to lift dwelling investment by more than 10 percent and GDP by 0.5 percent this year, he said.

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