Though the numbers unveiled are not unexpected, the latest set of housing start data from the Australian Bureau of Statistics (ABS) can only be described as disappointing for the residential construction industry.
With the seasonally adjusted number of new dwelling starts plummeting by 12.6 per cent in the March quarter to be down by almost a quarter when compared with the same quarter last year, it is hard to be enthusiastic about the current state of the housing market.
The do not figures look any cheerier considering the fact that seasonally adjusted start numbers have just recorded their lowest value for any three month period since the March quarter of 2001.
Furthermore, even if the housing recession brought about by the GST is excluded, the current annualised level of housing start numbers – which Housing Industry Association (HIA) senior economist Harley Dale puts at 122,492 – is running at its lowest level on record since the September quarter of 1996.
Things are bad, and it is hardly surprising that industry commentators do not mince words when talking about current market conditions.
“Carve through the current argy bargy about how strong or weak the Australian economy is and you find that new housing is unequivocally weak,” Dale says.
Master Builders Australia chief economist Peter Jones concurs, noting that continuing housing weakness is putting the viability of many buildings and construction jobs at risk.
“The figures are a major setback for an industry that has now fallen to lows experienced during the global financial crisis,” he says. “The glass is less than half-full for the housing sector. Jobs are being lost and more at risk.”
Will Things Improve?
In the short term, predictive data is not encouraging.
Indeed, with April building approval numbers coming in at their lowest level since January 2009 on a seasonally adjusted basis and the number for new home sales in that same month looking good only compared to a shockingly low March figure, it would seem that if anything, the pace at which new residential building work is coming in has slowed even further.
Furthermore, home building conditions in Queensland and Victoria will be hit by the fact that grants specifically aimed at purchases of new homes in these states will no longer be available. The Queensland Building Boost Grant of $10,000 expired in April, while Victoria’s First Home Bonus is set to finish up at the end of the month.
There is that great big new tax, which the Centre For International Economics (CIE) says will add between 1.4 per cent and two percent to overall building and construction costs and which Allen Consulting Group estimates will add around $3,800 to the cost of a model two-storey, detached brick veneer 200 square meter house.
Add all this up and there is plenty of negativity surrounding the near-term outlook.
Fortunately, however, there are also two key positives.
Recent interest rate cuts will have a significant positive impact over coming months despite banks failing to pass on the full extent of the cut.
Taken as a whole, it is probably likely that residential construction conditions will start to pick up over coming months once the full effect of the rate reductions and NSW/SA fiscal measures start to kick in. Certainly, in their respective forecasts, both HIA and the Construction Forecasting Council have consistently indicated a belief that housing will bottom out around the middle of this year and start to recover in the second half.
Still, with all the headwinds continuing to face the industry, any turnaround is likely to be modest in scale.