Australia’s leading housing industry group has warned that a return in the volume of residential construction activity to lows experienced prior to the Global Financial Crisis is now inevitable.
But despite showing signs of weakness in recent quarters, the renovations market is set to remain reasonably buoyant.
In the winter edition of its National Outlook, Housing Industry Association (HIA) says it expects overall number of dwelling unit starts to come in at 133,420 – down 11.5% from an already subdued level in 2011 and lower than any other time for at least the past eight years (see chart).
“HIA has noted for a considerable time the risk that new housing again revisits levels experienced as a result of the GFC” HIA Chief Economist, Dr Harley Dale says.
“That situation now appears unavoidable, to the detriment of thousands of businesses and households, not to mention the overall domestic economy”.
Dale also says the nation is building fewer homes than it needs because of a combination of soft demand and a high cost of supply.
He says government action is needed to boost confidence and lift a substantial portion of the tax burden from the sector.
“We are experiencing a combination of softer housing demand and high-cost housing supply, which together mean that the nation is under-building by a significant amount” Dale says.
“Put simply, Australian consumers are nervous about the global and domestic economies, and meanwhile around $200,000 of the price of a new home is due to taxation.
“It’s an unsustainable situation”.
On a financial year basis HIA says that housing starts are expected to bottom at a level of 135,280 in 2011/12 before posting a modest recovery to 141,870 starts in 2012/13 and 148,060 starts in 2013/14.
At face-value, the housing group says, this outlook reflects expectations of two consecutive years of recessionary conditions in the new home building sector, followed by a recovery to a level still many thousands of starts below the decade-average.
On the renovations front, HIA says that although signs of weakness have emerged (notwithstanding the strong base this sector is coming from after total levels of renovation investment hit a new record in 2010/11), the sector will remain reasonably buoyant going forward.
In the financial year just gone, the housing group expects renovations investment to have declined by 1.5%, but HIA is forecasting growth of 1.3% in 2012/13.
“Three consecutive quarters of decline in renovations investment, at an accelerating pace, through to March this year is concerning. However, we are confident this situation will turn around which is good news for the housing industry,” added Harley Dale.
In terms of states, HIA says the Australian Capital Territory is the ‘star of the show’ even though activity is ‘predictably on the decline’, whilst the under-built Northern Territory is seeing a much needed recovery in both new housing and renovations and Queensland is expected to recover from extreme lows over the course of the next year.
However, poor home building conditions are expected to persist in New South Wales, Victoria, Western Australia, South Australia and Tasmania – albeit with the latter two states expected to benefit from strong renovations work going forward.