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Friday, 28 June 2019

Pre-election economy: sand in the gears

Credit stymied

Credit growth had slowed to just 3.6 per cent over the year to May 2019, which was the month of the Federal election.

Broad money growth was off the mat at 4.1 per cent.

Business credit grew by just 0.1 per cent in May, after a flat result in April.

It's tricky to know exactly what personal credit growth is measuring these days - not very much by the looks of it! - but new car sales have slumped, and personal credit growth was in recessionary territory at negative 3.2 per cent. 

Meanwhile credit growth for investment housing was the slowest ever at just above zero, with Labor's pre-election pledges weighing here in conjunction with caps on total investor lending, the interest-only reset, and other tighter lending practices. 

ANZ, Westpac, and National Australia Bank each recorded shrinking mortgage books for investment loans over the year to May 2019, with only Commonwealth Bank of the majors scraping into positive territory. 

Impulse to improve

Overall housing credit growth was the lowest since records began in 1976 at just 3.67 per cent, although the rate of decline had already bottomed out at the end of the first quarter of 2019. 

Accordingly the credit impulse chart - which does have some limitations, it should be said - was already turning north by the election date, with capital city housing prices set to follow suit. 

Since the election there has been an interest rate cut and the ALP's proposed suite of taxation changes have been rejected by the electorate, so housing sentiment has lifted noticeably throughout the month of June. 

One of the interesting things which came out of Labor's negative gearing calculation blunders was the striking and vital importance of investors in driving construction cycles, especially for new apartments.

Notably the investor share of outstanding credit has now fallen to the lowest level since 2012, and at 32 per cent of housing credit sits well below the 15-year average. 

It would be a brave investor to buy into some of the new high-rise apartment developments on offer in the prevailing environment - ironically the design of Labor's now-redundant policy was all set to funnel more investors into exactly this style of property - with high-profile building defects now grabbing almost daily headlines. 

A stylised calculation suggests that apartment construction may roughly halve leading the housing cycle towards its next undersupply by the end of H2 2020.