In the past 12 months, the Reserve Bank of Australia has already reduced the official exchange rate three times and further reductions are expected over the next year. Although some parts of the economy have already benefited from these cuts, the housing construction sector seems to be left behind, according to an analysis by SQM Research.
When examining how housing construction responds to rate reductions, it is essential to consider three factors: approval, start-ups, and completions.
The current rate of growth of these three factors seems to give a gloomy picture of the housing construction sector. SQM's Director of Research, Louis Christopher, said approvals and procedures followed significantly less than completions, which have now reached their peak.
Read also: Prediction: Two new rate cuts
"Normally, once a project is completed, workers move on to the next project, there are now fewer starts than completed work, so there is less work available, which means more job losses, "he said.
The graphs below show current trends in approval, commencement and completion of housing:
Loss of Jobs in Construction
Building approvals trail behind construction, which could pose serious problems, said Christopher.
"This means that more job losses in the housing construction sector are to be expected in 2020 and probably in 2021. This will occur despite interest rate cuts, tax cuts and simplified lending standards As shown by building approvals, there has not yet been a response in the form of increased demand for new homes, "he said.
Due to declining building permits, construction may slow the economy for many months.
"This must be a major concern for the RBA, and for the federal government elsewhere.As you have guessed, housing construction does not represent a small proportion of employment The RBA puts it at just under 6%, "Christopher said.
Read also: What is causing the slowdown in the construction of houses in Australia?
Already seen?
A similar situation was observed from 2011 to 2013. However, the boom in the mining industry has been a major creator of jobs during those years.
"For the moment, investment in the mining sector seems to have bottomed out and will increase moderately over the next 12 to 24 months, taking some of the backlog, but no one expects a recovery. massive mining sector, "said Christopher [
Can the economy rely on the infrastructure sector to offset losses in the housing construction sector? Christopher said that he could, potentially. For the fiscal year 2020, it was planned to invest $ 13 billion in infrastructure.
"Infrastructure helps better compensation, and perhaps with mining activities, it will do it.The RBA predicts that the unemployment rate will fall to 5% by 2021. But no one really knows it. Let's hope they're right, otherwise they're right, Australian unemployment will continue to rise in 2020, which will not benefit anyone, "he said.
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