Australia deputy governor Ric Battellino has stolen the limelight today with comments that we have only just entered a new upswing and that our 18 years of economic expansion has many more years to run.
“It is now 18 years since Australia has experienced a negative in year-ended GDP growth, a very prolonged economic expansion. With the economy having only recently entered a new upswing, it is reasonable to assume that we will see this growth extended for a few more years yet.”
This very bullish forecast is on the back of further expansion of the resources sector and the development of “some very large gas projects”. Mr Battellino indicates Mining investment, which is already at record levels as a share of GDP, could rise substantially further in the next five years or so.
As far as the housing market is concerned, Mr Battellino believes we can cope with higher house prices. He acknowledges Australian’s are spending a lot more on dwellings now in real expenditure terms than 15 years ago, but growth in the population and continued high immigration along with solidly rising household incomes will underpin demand for housing.
Mortgage repayments in Australia is generally paid with by wages and not GDP points. It is not quite clear how the mining boom or one or two large gas projects will cause household incomes to rise across the country.
However we can only pray he is right as Mr Battellino also acknowledges Australia has a oversupply of dwellings.
“Census data show that the number of dwellings built has exceeded the increase in the number of households by a large margin. As a result, the ratio of the number of dwellings to the number of households has been rising over time; as at 2006, there were 8 per cent more dwellings in Australia than there were households.” said Mr Battellino.
He believes most of the surplus reflects holiday houses and second homes. This was a similar case to that of the U.S. and U.K. When money was tight, owners off loaded their holiday and second homes in droves causing a large oversupply of homes in a very short duration.
In October last year Mr Battellino indicated Australia’s housing market had crashed in 2003, and that we were actually leading the U.S. & U.K. by three years.
The bullish talk from the RBA further supports Australia is in store for another 25 basis point rise come next Wednesday.
» Housing & the economy – Ric Battellio RBA, 25th November 2009.
» RBA signals golden era of growth ahead – The Sydney Morning Herald, 25th November 2009.
» High home prices sustainable: RBA – The Sydney Morning Herald, 25th November 2009.