The residential construction industry in Australia is set for a modest recovery on the back of interest rate cuts, home buyer incentives in some states and policy reform in New South Wales, an industry association says.
In the spring edition of its National Outlook, Australia’s most comprehensive housing report card, the Housing Industry Association says it expects the number of housing starts throughout the nation to rise by 1.8 per cent in 2012/13 and activity in renovations to grow by 1.6 per cent following a 2.7 per cent decline in 2011/12.
“A mild recovery in 2012/13 will be driven by interest rate cuts (which will provide some impetus), new home incentives in a handful of states, and some focus on policy reform in NSW,” HIA chief economist Harley Dale says.
On a calendar basis, the HIA says the housing starts cycle is set to bottom out in 2012 at 136,809 – a decline of 9.3 per cent, with the HIA warning that an even steeper decline is possible on current evidence. Starts are expected to increase by 4.5 per cent this year and a further seven per cent in 2014.
Meanwhile, the growth in renovations investment levels in the current financial year will be followed by further growth of 1.2 per cent in 2013/14, taking overall levels of renovations investment to record levels of $29.958 billion.
Still, Dale warns that any recovery will be constrained by a number of factors, including an ongoing process of household deleveraging, a lack of full pass-through of interest rate cuts, tight credit supply and a failure on the part of governments to reduce the ‘excessive taxation’ of new housing.
He says any sustained recovery can only occur if governments act to implement policy reform with regard to taxes and supply side impediments.
“The catalyst for a widespread and sustainable recovery is policy reform to reduce the excessive and inefficient tax bill that renders new housing the second most heavily taxed sector of the Australian economy,” Dale says. “Governments of all levels can’t sit back and presume that lower interest rates alone will reignite new home building activity back to healthy levels, because they won’t.”
The latest forecasts follow a strong rise in vacant residential land sales during the June quarter of this year, an increase which the HIA says is indicative of a likely recovery in housing starts early next year.