Capacity pressures to persist despite housing weakness

This week’s data will likely have reinforced the RBA’s view that tighter financial conditions are weighing on the housing market. But we doubt that housing wealth effects will push consumption much below the Bank’s forecasts. Dwelling approvals have also softened, though they have been a poor guide to dwelling investment of late. And with data-centre construction supporting non-residential building activity, any capacity relief from housing weakness is likely to be limited, keeping the RBA on alert.