Tough times for tradies, but I’m in the money
Sometimes you find a piece of data that doesn’t really mean all that much on it’s own, but really is just the perfect way to tell a complex story.
And today, that data point is ute sales in Australia, which, as it happens, have tanked:
If you use ute sales as a marker of small business investment in Australia, you get the impression small business is terrified. Sales of light commercial vehicles collapsed in October 2019, down 11 per cent compared with October 2018.
At the start of the 2019, sales were much the same as last year. Some months a bit higher, some a bit lower. Around the middle of this year something changed. Sales of light commercial vehicles – which is mostly utes but includes vans and small buses – began to get worse and worse. In October, the fall was a whopping 11 per cent.
As the next graph shows, the “ute index” is in the red, with nearly 10,000 fewer light commercial vehicles sold compared with 2018.
“The ute index shows sales are in rapid decline.
Ok, so this isn’t great for ute manufacturers, but there’s a whole lot more to this story.
What we’re seeing here is the pointy end of a general downturn in the construction industry.
We’ve had pretty good run. Over the last half-decade or so, we had a construction boom. Detached housing construction was strong, while unit construction was off the charts.
But all good things come to an end. That natural cyclical end was also hastened along by a bit of a credit freeze following the APRA restrictions.
And with stalling high-rise apartment prices creating a fair degree of settlement risk, high-rise construction rates are tanking.
And so, the construction boom is over.
And that means tradies across the sector are going to be looking at having to weather a tougher phase of the cycle.
We might also see a bit of a shake-out in construction employment. Construction jobs ads have clearly turned and suggest that the job numbers will probably struggle too.
Which means lower wages and generally tighter purse strings all round.
(And less money for new utes, obviously.)
And so the construction boom is over.
But this is the thing.
The construction boom is finishing… without having made all the much difference to the housing supply / demand balance.
According to CBA’s model of Housing Demand & Supply, we did have a short period of housing over-supply (although this was probably entirely located in the high-rise segment.)
However, with population growth remaining strong, driven by overseas migration, housing supply is already starting to wane.
The CBA estimate that the market is about in balance now, but with construction falling and population growth remaining strong, we’ll quickly return to a housing shortage in 2020.
And when the market goes back to a housing shortage, that will add further fuel to the rocket under house prices.
And so, as someone with a large property portfolio, the construction downturn is likely to increase the value of my property holdings.
That doesn’t mean that I’m cheering it along. I definitely don’t want to see large numbers of tradies laid off, but it’s one of the odd things about the property market that most people just don’t get.
The market can stay in balance, if and only if, we build houses at a phenomenal ‘off the charts’ rate. Anything less than phenomenal and demand starts outstripping supply, and prices rise.
And this is one of the reasons we’ve seen such sustained price increases over the past decade or so.
And that’s the story here.
Australia – land of the perpetual housing shortage.
JG
Vlad says
Figure 24 looks now like the beginning of the up-cycle in 2013, when the number of jobs more than doubled in 5 years.
Tothsandor says
Koszonom varom ahavi bert même les unepeket toth sandor
Tothsandor says
Kelemesunepeket varom a havi bert toth sandor