(Australian Associated Press)
Australia’s big boom in residential construction could decline sharply and the slide could last for four years if interest rates were to rise.
Building construction forecaster Dr Kim Hawtrey, from BIS Oxford Economics, has told a conference in Brisbane that low interest rates are fuelling record growth in dwelling commencements across Australia.
Dr Hawtrey says Australia is experiencing its largest boom in commencements with growth of 60 per cent compared to an average 42 per cent since the 1960s.
“That’s larger than any previous cycle and it has lasted for 45 months which is the equal longest cycle over the period,” he told the BIS Oxford Economics forecasting conference on Tuesday.
“The demise of a bull market usually follows a change in policy – it might be an increase in interest rates or reduction in first home owner grants.”
He said that when the bear market follows, it usually goes down by about 24 per cent, on average, but it depended on how much the market had gone up beforehand.
“We’ve got the market going down 33 per cent from here on and taking 48 months to do it,” he said.
“Apartments are the volatile ingredient in what happens next and you have to be a little less confident, therefore, that we would see an orderly contained bear phase following this cycle.”
He said NSW, in particular Sydney, had strong demand for new dwellings but that was not the case elsewhere.
While Victoria was close to hitting an oversupply of apartments, demand for detached houses was strong demand.
Dr Hawtrey said borrowers had taken on huge loans during the boom, increasing the risks when interest rates start rising.
If President Donald Trump stimulates the US economy, as expected, inflation there would rise and that could lead to higher interest rates around the world, including Australia, he said.