Following the release of the Housing Industry Association’s quarterly housing construction outlook on July 16, the organisation’s chief economist, Harley Dale, spoke frankly about the outlook for the residential construction industry at a national level.
For some time, Dale said, there had been a considerable risk that activity levels in new housing would revisit levels experienced during the GFC.
After the HIA’s quarterly report, that seemed inevitable.
Subsequently, final March quarter building activity figures released by the Australian Bureau of Statistics this week – which showed overall seasonally adjusted levels of new housing construction activity having fallen by 1.9 per cent in the quarter and down 8.7 per cent compared to the same period last year, plus a 5.5 per cent drop in renovation work in the quarter – did not create cause for optimism.
However, not all states are the same in this regard, and while the outlook in some states is poor, conditions in others are expected to be rebound somewhat over the next 12 months.
Here is how the HIA sees the outlook for each state:
New South Wales
Describing it as a state that has endured ‘a synchronised trend decline in new home building and renovations activity of a duration unrivalled in Australia’s post war history’, with housing starts having plummeted to their lowest level ever recorded and a ‘renewed down-trend’ emerging for the renovations sector, the HIA is not confident in prospects for New South Wales in spite of recent government efforts to lift home building activity.
At first, forecasts of an 18.2 per cent jump in housing starts in 2012/13 and further growth of 5.3 per cent in 2013/14 to take the number of starts from an estimated 28,524 in 2011/12 to 35,503 in 2013/14 does not sound bad.
But the way the HIA describes their forecast sums up the glum mood for the state.
“Given the awful base we are forecasting a recovery from, 35,503 starts is not a bullish forecast,” the HIA says. “However, we have to begin somewhere and with so many false dawns leading to so little confidence in new home building prospects in Australia’s largest state, getting there would mean two consecutive years of growth.”
In terms of renovations, while investment in this area is believed to have plummeted 8.3 per cent over the past financial year, a moderate recovery is expected, with growth of 3.3 per cent in 2012/13 and 1.5 per cent in 2013/14.
While current levels of housing starts remain ‘higher than anywhere else’ and renovations investment is at record levels, the HIA says the state’s housing star ‘has been waning for some time and everybody is aware of this fact.’
Going forward, the housing group is not optimistic about near-term prospects. It suspects that housing starts have dropped back by 19.4 per cent in the past financial year and expects further falls of 12.6 per cent and 3.5 per cent in 2012/13 and 2013/14 respectively, with risks to this forecast being ‘on the downside’.
The picture is better, however in renovations, where investment appears on pace to set a record of $6.8 billion in 2011/12 but is expected to ease back 3.1 per cent in the current financial year and a further 0.7 per cent in 2013/14.
Better times are expected for Queensland, where conditions of late have been dreadful.
From a low starting point of 25,370, the HIA expects housing start numbers to jump 13.3 per cent in the current financial year and then by a further 15.8 per cent in 2013/14 to reach 33,286 starts.
The market for renovations, too, appears to be returning to some form of normality, with the overall value of renovations investment in the state having rebounded from low levels of $6.871 billion in 2010/11 to $7.155 billion in 2011/12. This year, the HIA expects modest growth of two per cent in renovations investment with a slight contraction of 0.7 per cent in 2013/14.
While the renovations market in South Australia is holding up reasonably well, conditions in the market for new housing construction are terrible.
After plummeting by 12 per cent in 2010/11 (10,528), the HIA expects new housing start numbers to have dropped a further 15.9 per cent in 2011/12.
Going forward, a further contraction of 0.5 per cent in the current financial year is expected to see start numbers drop to 8,800 – a number the HIA says represents a ‘very weak profile’ for the state’s economy.
With regard to renovations, however, the housing group is less pessimistic, expecting activity growth of 2.7 per cent in 2011/12 and 1.1 per cent in 2012/13 – a recovery of sorts when compared to the 5.2 per cent drop in 2010/11.
The Western Australian economy may be booming in mining areas, but with the overall number of new housing starts forecast to have declined 15.8 per cent to 17,510 in 2011/12, current home building conditions are well down.
The story is not much better for renovations of existing homes, where the dollar value of investment declined by a ‘non-trivial’ 8.9 per cent to $4.4 billion, albeit with activity in renovations having risen 7.3 per cent to near record highs of $4.9 billion in 2010/11.
Fortunately, however, the bad news stops there. This year, the HIA expects new housing start numbers to bounce back by a quarter before growing by a further five per cent in 2013/14.
Renovations, too, are expected to come back strongly, with the value of investment expected to grow by 4.2 per cent in 2012/13 and 3.3 per cent the following year to come in at $4.8 billion.
Much like South Australia, Tasmania is experiencing horrible conditions in new housing but near-record levels of residential investment.
At the same time as new housing starts are expected to have plummeted by almost a quarter over the past financial year, investment in renovations is expected to be up by around 7.2 per cent.
Going forward, there is no improvement in sight for new housing, with the HIA expecting starts to post a modest decline again this year before returning to modest growth thereafter.
Renovation investment is likely to ease back by 2.4 per cent in the current financial year before stabilising in subsequent years.
Like New South Wales and some other states, current market conditions in residential construction in the Northern Territory are poor.
In the past financial year, the HIA expects that housing starts will be shown to have declined by 12.7 per cent, taking start numbers to a ‘woefully inadequate’ 1,100. Renovation investment, meanwhile, will have plummeted 16.3 per cent.
With current home building levels not meeting demand, however, there is cause for some optimism.
In 2012/13, the HIA expects a significant rebound of 30.1 per cent in housing start numbers, and a ‘decent rebound’ of 14 per cent in renovations investment levels.
Australian Capital Territory
Predictably, after having been the darling of the housing market in recent years, conditions in the Australian Capital Territory are now dropping back but remain at healthy levels.
The big question, the HIA says, is whether or not the ensuring down cycle is of ‘manageable proportions.’
From a record number of starts in 2010/11 (3,980), the HIA expects housing start numbers to have fallen by 22 per cent in the last financial year and further to decline by three per cent to 3,230 the following year.
Likewise, in terms of renovations, the HIA expects levels of investment to drop back from 12 year highs of $435 million in 2010/11, decreasing by 5.5 per cent in 2011/12 and 3.6 per cent in 2012/13 to settle at around the $400 million mark thereafter.
Despite the drop back, the HIA stresses that both new housing starts and renovation investment will remain at levels considered to be reasonably healthy by long term historic standards.