The Australian government’s reliance on housing to rebalance the economy comes with a number of inherent risks, according to analysts from Citi Research. In a new deep dive research note on assets in Australia and New Zealand, analysts Paul Brennan, Josh Williamson and Vivian Jiang said we are currently in Australia’s largest housing construction upswing. Despite measuring only 5% of gross domestic product (GPD), housing activity made up just over half of all private sector growth in the past three years with employment in the construction sector accounting for almost 25% of the total increase in labour during that time.
This is quite a turnaround from this Nov 2016 statement by Citi:
House prices in Australia are only really high in Sydney and to a lesser extent Melbourne, and a price slide would require a jump in unemployment, most likely triggered by an interest rate tightening cycle, Citi says.
This was critiqued at the time by MacroBusiness.
“… it’s ludicrous to say “Sydney prices plateau and remain expensive unless there are some large external negative shocks to the economy”. There are always large external shocks to the economy, very reliably every eight years or so, with the next due in 2017!”