Australia’s Building Boom Set to Fade Further as Omicron Weighs

(Bloomberg) -- Sign up for the New Economy Daily newsletter, follow us @economics and subscribe to our podcast.

Annual approvals to build new homes across Australia skidded in November and economists expect activity to cool further this year as the omicron variant of coronavirus worsens shortages from staff to materials.

Residential building approvals dropped 7.7% in November from a year earlier, data from the Australian Bureau of Statistics showed on Monday. Private-sector homes declined an annual 8.1%.

Housing construction contributes roughly 5% to annual gross domestic product, and Diana Mousina at AMP Capital Investors Ltd. reckons the slowdown in the sector could detract from GDP this year. That only adds to the clouds over the outlook with rapidly-spreading omicron already hitting consumer spending. 

“Building approvals probably have a little more downside to go from here, particularly for houses which are still tracking at a much higher rate compared to pre-pandemic levels,” Mousina said. 

The surge in Covid-19 cases is a headwind too, aggravating labor shortages as staff call in sick or are forced into isolation.

“With construction industry capacity already stretched and a sizable backlog of work locked in, further project delays and input shortages are to be expected,” said Tim Hibbert at BIS Oxford Economics. 

Still, one important ongoing support for the housing industry is record-low interest rates, with the central bank saying it doesn’t expect conditions for a hike to emerge this year.

©2022 Bloomberg L.P.