In a recent forecast on building activity, industry research firm BIS Shrapnel predicted that the value of residential starts will increase by only one per cent in financial year 2011/12. The lag effect from the end of the First Homeowners Grant extension in 2009, along with the winding down of stimulus spending on public housing, BIS says, will offset an “otherwise healthy rise” in starts on multi-residential units.
Nevertheless, the forecaster is confident about 2012/13, during which it expects starts to increase by ten per cent. Along with stronger economic growth and an uptick in net overseas migration, BIS believes the housing recovery will be further strengthened by an imbalance between underlying demand and housing construction activity.
BIS is not alone. After an anticipated fall in the number of starts from 153,730 to 143,770 in the current financial year, Housing Industry Association (HIA) expects the number of starts to bounce back in 2012/13 to 153,790, according to its forecast issued in July.
This is welcome news. Conditions right now are ugly. According to the Performance of Construction Index, published by HIA along with Australian Industry Group (AIG), levels of house building activity in July registered just 28.5 – the lowest reading in the past two years and the fourteenth straight month during which the value of work has contracted. (Any reading under 50 on the index represents a contraction in activity during the month in question.) Worse, new orders in both apartments and homebuilding contracted faster in the last month than at any other time over the past two years, the PCI index showed.
Despite this, however, the Construction Forecasting Council (CFC) is not overly pessimistic about near term prospects. In 2011/12, the CFC expects the value of work done on all forms of dwelling construction (including alterations) to come in at $52.023 billion, a respectable increase of 6.2% when compared with the $49.590 billion recorded in the year to March 2011.
Moreover, like other forecasters, the CFC is optimistic about 2012/13, during which the forecaster expects activity to grow by a further 7.4% to reach $55.853 billion.
Beyond 2012/13, forecasters vary in their outlook. BIS expects dwelling starts to contract by 15 per cent throughout 2013/14 and 2014/15 as labor shortages and prompt aggressive action on interest rates throughout 2013. The CFC, however, disagrees, expecting the value of work done in dwelling construction to reach $59.477 billion in 2013/14 and $64.962 billion the following year.
Resource states lead the way
Along with New South Wales, which suffers from a significant shortage in housing stock, BIS expects the recovery in starts to be concentrated in the resource rich states of Western Australia and Queensland.
According to BIS, over the next two years:
• Coming off a low base, growth in New South Wales is expected to be “very strong” over the next two years.
• Starts in Victoria are expected to decline from record levels in 2010/11 as pent up demand pressures begin to ease off
• After a decline in homebuilding in 2010-11 and only modest growth over the next twelve months, a “substantial deficiency” in stock will underpin strong expansion of activity in Queensland in 2012/13. Additions and alterations arising out of disaster recovery efforts will also support activity in 2011/12.
• In South Australia, an excess of supply will lead to modest declines in starts over the next two years.
• After flat conditions in 2011/12, activity will pick up in Western Australia in 2012/13.
• Following strong activity in recent years, the value of work is set to ease back in Tasmania.
• Underpinned by a tight property market in Darwin, activity in the Northern Territory is set for substantial growth.
• After a strong year in 2010/11, residential building activity is set to ease back in the Australian Capital Territory.