As its economy falters, Tasmania remains Australia’s worst performing state in terms of construction and the outlook for property industry capital growth.
In the latest Property Council-ANZ Property Industry Confidence Survey, Tasmania ranked dead last among the states and was the only one in which property industry participants expected a severe decline in capital growth and construction activity over the next 12 months.
With the state’s planning system in disarray and reports of a skills shortage in some areas, many structural problems within the industry remain.
Below is a snapshot of current market conditions in residential construction, commercial property/non-residential construction, engineering construction and property and construction industry employment throughout the state.
Despite the anticipated long-term benefits from the ParanVille-Korean Village announced in February, conditions in the Tasmania’s residential construction industry remain extremely subdued.
At 510, according to ABS figures, the number of dwelling units approved for construction in the three months to February (not seasonally adjusted) was well down on the 649 dwellings approved during the same period 12 months earlier, meaning new work is coming in very slowly at the moment.
Not surprisingly then, Housing Industry Association (HIA) expects another weak year in residential construction. In 2012, HIA expects ground to be broken on just 2,560 new homes – the lowest number since 2003 (see chart below) – and does not expect any significant recovery in homebuilding activity in following years.
The picture is no brighter for renovations on existing homes. At $70.292 million (not seasonally adjusted), the value of work approved for construction on additions, alterations and modifications to existing homes in the six months to February was well down on the same figure for the previous corresponding period twelve months earlier ($76.276 million).
Finally, with Tasmania being the only state in which participants in the aforementioned Property Council confidence survey expect a significant drop in residential capital values, the outlook for house prices over the next 12 months is extremely weak.
Commercial Property/Non Residential Construction
While the immediate outlook for non-residential construction is decent, prospects for capital growth on Tasmanian commercial property are extremely poor.
With the exception of retirement living, participants in the Property Council survey expect significant declines in capital values of all commercial/non-residential property over the next 12 months. In terms of office and industrial property, participants expect significant price contractions even as moderate growth is expected on a nation-wide basis. In retail and tourism, where capital values are expected to fall nationwide, prices in Tasmania are expected to fall by more than twice the national averages.
Fortunately, the picture with regard to residential construction is not so poor. Helped along by the redevelopment of Royal Hobart Hospital – the contract for the $31.1 million fitout of a new cancer ward has just been awarded to construction company Fairbrother – the overall value of buildings approved for construction in the six months to February ($253.1 million, not seasonally adjusted) was well up on that for the equivalent period one year earlier ($216.5 million).
Activity in the engineering construction sector in Tasmania has been subdued in recent quarters.
Going forward, the outlook depends on whether or not some of the state’s more controversial projects proceed. In its most recent civil construction outlook report Engineering Construction in Australia 2011/12 –2025/26, industry research firm BIS Shrapnel says it expects reasonable growth for Tasmania over coming years. BIS warns, however that this depends on assumptions about energy projects such as the Musselroe and Cattle Hill wind farms starting in 2011/12 and 2012/13 respectively and heavy industry projects such as the Gunns Pulp Mill proceeding in 2013/14.
Should Gunns not proceed, BIS says, virtually no growth in overall civil construction activity is slated to occur over the next three years.
At the moment, conditions in the construction labour market throughout the state appear to be reasonably steady. At 17,900, the ABS estimate of the number of people employed throughout the state in a full time capacity throughout the three months to February is marginally up on the same period twelve months earlier (17,700) and also when compared with the three months to February, 2010 (17,000).
That said, with Tasmania being the only state in which participants in the Property Council confidence survey expect a significant reduction in staffing levels, the outlook for workers going forward is not encouraging.
Just as worrying is the fact that the state is believed to be suffering from a skills shortage in some areas. A prime example is in heritage listed architecture, which according to recent reports is falling into disarray in some areas due to lack of skills to repair it.
Planning in Chaos
As if the weak construction conditions were not bad enough, the state’s planning system is widely considered to be substandard. In March, the state received an ‘F’ on the Development Assessment (DA) Report Card, which ranks state planning performance against 10 core principles for good planning based on research from the Residential Development Council (RDC) and the Property Council of Australia.
Property Council Tasmanian executive director Mary Massina laments the fact that despite promises from the state government, the state has yet to see a single residential dwelling code or multi-residential code, that the draft Capital City Plan for Hobart is a failure and that the state does not have a workable process for Projects of Regional Significance.
“Tasmania’s biggest private sector industry has been calling for real planning reform that provides certainty, clarity and consistency for both the Tasmanian community and the private sector,” Massina says. “Yet we still have a piecemeal approach.”
“It’s not hard to see why we are at the bottom of the report card.”