Treasury forecasts housing downturn

The Treasury is forecasting a heavy downturn in the housing market through until at least the second half of 2007.

Thursday, May 19th 2005, 5:10PM

by Rob Hosking

The economic forecasts contained in this month’s Budget make pessimistic reading, even though they are hedged with a number of caveats.

Treasury economists estimate that residential investments has already fallen to zero for the year to March, although the way statistics are completed mean it is not yet clear that has happened.

The economic tables accompanying Finance Minister Michael Cullen’s sixth Budget also predict residential housing investment will fall to negative over the next two years.

Investment in the sector was already weaker during the second half of last year than the Treasury had forecast. However the officials say there may have been a catch-up earlier this year.

“The continued buoyancy in house sales (a leading indicator of residential investment) may also portend a short-term resurgence in residential investment, although the increase in house sales may merely reflect the mortgage rate war in late 2004.”

And the Budget’s economic outlook goes on to say that the Treasury may have been too pessimistic.

“The anecdotes of a backlog of work which has built up in the housing construction industry (chiefly because of the shortage of skilled trades people) provides a further risk of higher than forecast residential investment for a period.”

However, the forecasters warn this does not mean the downturn is off – merely that it may be postponed. If there was an up-tick in the sector in the first part of this year, “there would be lower activity later”.

Rob Hosking is a Wellington-based freelance writer specialising in political, economic and IT related issues.

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