Building slide to have spin-off effect

QUESTIONS have been raised about the short-term future of the WA economy if a predicted fall in building and property sector activity eventuates.

The sector, propelled until now by the first home buyers’ scheme, may have peaked and looks set to slide downward.

The latest home building statistics from the Australian Bureau of Statistics showed that there was a 7.3 per cent monthly decrease nationally for new building approvals during December.

WA fared worse than the national figure, with an 11 per cent decline during the month.

The dramatic slump took many economists by surprise. While many forecasted that housing would decline by mid year, the medium market expectation was for a 2.5 per cent increase for December.

With the gradual phasing out of the housing assistance scheme, expectations are that the decline in building activity during December will continue for at least the next six months.

The first home buyers’ grant was considered by economists and industry groups as the main contributor to the building industry boom during the past year.

BIS Shrapnel senior economist Richard Robinson said that, although the property and construction sector accounted for about 7 per cent of WA’s economic activity, its impact on the general economy was far higher than many other sectors.

He said it had big multiplier effects that made the sector “punch well above its weight”.

For every dollar spent on construction, another three dollars in economic activity is created.

“So to say that the building industry is pushing the economy along is probably quite correct,” Mr Robinson said.

But while domestic dwellings may be on the decline, the non-residential building and engineering work, particularly in the mining sector, should act as an offset.

Also picking up the slack is a solid agriculture sector, with wool prices strong and healthy crop yields also expected to flow through the economy.

But with housing on the decline, retail trade, which grew a disappointing 0.1 per cent in December, is likely to continue to fall.

A report by BankWest economist Alan Langford warns of the strong correlation between housing and consumption demand. With consumption demand comprising 75 per cent of gross State product, any flow-on from housing should not be ignored, he warns.

“It is not unusual for sales of household goods to comprise a significant share of total retail turnover when the residential construction sector is on a cyclical upswing, as was the case throughout the second half of 2001,” Mr Langford said.

“However, as dwelling construction activity tops out around the middle of this year, a key driver of growth in retail sales will make a significantly less robust contribution to growth, and may even act as a drag on growth.”

CCI senior economist Nicky Cusworth said a likely increase in business investment would help alleviate any economic downturn from the potential housing drop off.

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