There was a surprising driver behind last weeks strong GDP result…
Property to the rescue again!
So amongst all the hoo-ha last week about our strong GDP numbers – and look they were good. 1.8% in the March is a big number, especially when the markets were expecting 1.5%.
And the economy is now bigger than it was pre-Covid.
So look, great result. Go Aussie go.
And not to take anything away from that, but when you actually dig into the numbers, a big chunk of that growth – the bulk of it actually – comes from the property sector.
Specifically, stamp-duties and renovations.
Together, these two accounted for a full 0.9 percentage points of the 1.1% increase over the past year.
So you know, like almost all of it.
That’s what the AFR reckon:
Record stamp duty revenues and a surge in home renovations are driving Australia’s economic recovery to a greater extent than any other time in almost two decades, raising the risk that growth could slow as the property market eventually cools.
Growth in expenditure on “ownership transfer costs” and “alterations and additions”, which covers spending on real estate stamp duty and home renovations, accounted for 0.9 percentage points of the 1.1 per cent increase in gross domestic product (GDP) over the past year, according to an analysis by The Australian Financial Review of the Australian Bureau of Statistics’ March quarter national accounts data.
“It is a hefty contribution that you are getting to GDP growth from what is typically two fairly small components of GDP,” said HSBC chief economist Paul Bloxham.
The last time that stamp duty and home renovations, which comprise just 4 per cent of GDP, drove economic growth to a similar extent was in June 2002, as the 2000-2004 property price boom gained steam.
Mr Bloxham described the surge in stamp duty payments and home renovations as “unsurprising” given the nature of the policy response to COVID-19, including the adoption of record low interest rates and the government’s $25,000 HomeBuilder grant.
So go property go. Punching above your weight again. It’s a reminder of just how important the property sector is to the Australian economy.
But it is also true that government policy – particularly the HomeBuilder program has driven a good chunk of this.
HomeBuilder could be used for “substantial renovations” and 121,000 people have taken up the scheme.
Showroom managers are saying that business is through the roof:
The showroom manager at Sydney-based Abode Renovations, Cherie Stelzer, said the business was booked “way more in advance” than at any other time.
“Normally, we used to be booked three to four weeks in advance. Now it is about six or eight weeks in advance,” she said.
Customers frequently cited the additional savings resulting from the international travel ban as their reason for undertaking a renovation, according to Ms Stelzer.
“Until anybody can travel and spend their money otherwise, I think they are really happy to update their homes,” she said.
My contacts in the industry are saying a similar thing.
And I’m not sure it’s going to let up. We know from the last national accounts that households are sitting on a massive war-chest of cash. Household savings are now tipping $200 billion!
I reckon a decent chunk of that will make its way into property one way or the other – either as funding for a renovation, or as a deposit on a new home or investment property.
So thanks again to property, carrying the Australian economy again.