Outside of a home renovations boom, not much is going right for the Tasmanian property and construction industry as subdued economic conditions continue to feed through to low levels of housing starts, expectations of falling prices for commercial property, weak civil construction activity and significant levels of dissatisfaction with various aspects of government policy.
Indeed, participants in the September Quarter Property Council of Australia-ANZ Property Industry Confidence Survey were more pessimistic about the 12-month outlook for the industry in Tasmania than they were for any other state except for the Australian Capital Territory, where property market conditions are easing back after extremely strong activity in recent years.
Below is an outline of current market conditions as well as the near term outlook for residential construction, commercial property/non-residential construction, engineering construction and construction industry employment in the state.
As in South Australia, there are two sides to story in the Tasmanian residential construction market.
On the positive side, the market for renovations of existing homes is booming. The Housing Industry Association (HIA) expects the overall value of renovations investment in 2011/12 to come in at $815 million – the highest level on record and representing a more than respectable 7.2 per cent year on year increase.
While the HIA does expect investment levels to ease back 2.4 per cent this year, this will still represent strong levels of activity by recent historic standards.
That, however, is where the good news stops. With housing starts believed to have plummeted by almost one quarter in 2011/12 to come in at levels far below those seen in recent history – even during GFC times – the market for new housing is extremely soft.
Going forward, with a further decline of one per cent followed by an extremely modest recovery of 3.5 per cent in 2013/14, the HIA expects new dwelling start numbers to remain at extremely low levels in coming years.
Forward-looking indicators are not at all encouraging. At 1,109 (not seasonally adjusted), the overall number of new dwelling units approved for construction throughout the state in the first six months of this year was well down on the previous corresponding figures (1,417 and 1,430) for the first half of 2011 and 2010 respectively, meaning that the pace at which new work is coming in is very low by recent historic standards.
Commercial Property/Non-residential construction
At 5.3 per cent (down from 5.9 per cent in January), Hobart actually has the second lowest office vacancy rate across any capital city in Australia, indicating that, for now, current market conditions for commercial landlords are actually relatively solid.
On the back of a combination of overall economic pessimism and subdued public sector demand due to fiscal restraint, however, expectations going forward are not strong.
Indeed, over the next 12 months, participants in the Property Council survey referred to above expect substantial falls in commercial property values across every category throughout the state except for retirement living.
The picture is no better when it comes to non-residential construction. At $185.6 million, the overall dollar value of non-residential buildings approved for construction throughout the state over the first six months of 2012 was well down on that for the first half of both 2011 and 2010 ($236.3 million and $261.9 million, respectively), though admittedly this past year’s figures were heavily influenced by federal government stimulus measures.
This means that new work in commercial and other non-residential building is coming in much more slowly than in previous years.
Not surprisingly, then, expectations regarding forward work schedules amongst both residential and commercial Property Council survey participants are lower in Tasmania than for any other state except for the ACT, which is coming off a period of strong building activity.
The picture is no better when it comes to civil or engineering construction.
At $196.5 million, the seasonally adjusted value of civil construction work done throughout Tasmania during the March quarter of this year was well down compared to recent quarters and was lower than any other quarter on record since the June quarter of 2005.
While at $758 million, the value of work yet to be done (ABS) as of March 31 implies a respectable forward order book, there is not a great number of significant dollar value projects on the immediate horizon.
Not surprisingly then, the Construction Forecasting Council (CFC) expects virtually no growth in activity this year.
Beyond that, the CFC expects a small amount of growth in 2013/14 (4.5 per cent) on the back of a few decent resource projects set to start next year (most significantly, the Mount Lindsey Magnetite Tin Project), but does not expect any significant growth in subsequent years.
Not surprisingly, given the weak building environment, current conditions in the construction labour market in Tasmania are awful.
At 16,200, the ABS estimate of the number of people employed in the Tasmanian construction industry on a full time basis is well below its level one year earlier (19,100) and at its lowest point over the past six quarters.
Moreover, with Tasmania being the only state in the country where participants in the Property Council’s confidence survey expect an overall contraction in staffing levels over the next 12 months, there appears to be little hope of any significant improvement going forward.
A Poor Performing Government
On top of all this, there is much dissatisfaction with the state government amid what are seen as excessive rates of taxation and a cumbersome and inefficient regulatory system.
On a scale of minus 100 to positive 100, participants in the Property Council survey referred to above rank the Tasmanian government’s performance in planning and managing growth at slightly worse than negative 50 – more than twice as low as the ranking given to any other state/territory government in the country.
What the state government insisted in the budget were ‘the biggest planning reforms ever’ were lambasted by the property industry as a missed opportunity for any kind of reform at all. In March, the Property Council gave the state an ‘F’ grade on its Development and Assessment report card, saying the plan for Hobart failed to meet eight out of nine COAG assessment criteria.
That’s not all. In the residential sector, Stuart Clues, executive director of the Tasmanian chapter of the Housing Industry Association, says that thanks to a loophole in the owner builder regime, ‘backyard builders’ or non-qualified builders, are ‘rife’ in the state’s north – leaving home owners exposed to potentially poor building practices and even driving licensed builders out of the industry.
The industry is not just going through tough times. There is great dissatisfaction with the way it is being managed as well.