Transcript Slide 1

Australian Housing and
Renovation Markets
Ben Phillips
Assistant Director – Industry
August 2008
The domestic interest rate outlook is still very uncertain
• Likelihood that rates will drop by 50 – 75 basis points over the next 12
months.
• Rates are still rising while the RBA sits on its hands.
• RBA is now more concerned by the slowing economy than continued
high CPI readings.
• RBA probably over-cooked the rates hikes earlier this year given that
banks have increased independently.
The global economy and Australia
• In mid 2008 the sub-prime mortgage crisis has fed (predictably)
into:•
•
•
•
Renewed weakness in equity markets
Credit rationing (and the RBA is very worried about this)
Retail lending rates rising again in July AND …
… an imminent rate cut
• Materials/commodity prices have risen substantially, in
particular steel and oil
• HIA calculations made in April found that a 40% increase in the price
of steel would add $2,800 to a timber framed/tiled roof single storey
home and $6,200 to a steel frame/steel roof home.
• Exports and economy being propped up by strong
Asia.
Where are we in 2008/09?
• Economic growth is slowing sharply and will end this year at
around 2 per cent.
• At a national level new home construction is heading for an
unprecedented 5 years of flat to weaker results.
• The renovations market is resilient but not booming.
• New residential investment is all but dead.
• House Prices are largely flat.
• Interest rates have only just stopped rising.
• Housing affordability is at record lows.
• Australia is still growing – now in its 17th straight year of
expansion.
Consumer confidence is getting battered …
Consumer Confidence – at a 'recessionary' level
130
120
Index
110
100
90
Long run average
80
70
60
Aug-90
Aug-93
Aug-96
Aug-99
Aug-02
Aug-05
Aug-08
Home-buying confidence probably has further to fall
Sentiment Towards Home Buying & Building Approvals
180.0
55000
160.0
50000
140.0
45000
120.0
40000
100.0
35000
80.0
30000
60.0
25000
40.0
20000
Index
60000
*Sentiment brought forward 3 qtrs
20.0
Jun-85
Jun-86
Jun-87
Jun-88
Jun-89
Jun-90
Jun-91
Jun-92
Jun-93
Jun-94
Jun-95
Jun-96
Jun-97
Jun-98
Jun-99
Jun-00
Jun-01
Jun-02
Jun-03
Jun-04
Jun-05
Jun-06
Jun-07
Jun-08
Jun-09
Number
Source: Westpac-Melbourne Institute; ABS; HIA
Building approvals (lhs)
Sentiment towards buying a dwelling (rhs)*
… the labour market story is nothing short of exceptional
Australia's Labour Market
U/e rate (LHS)
Annual Employment Growth Rate (RHS)
May-08
May-07
May-06
May-05
May-04
May-03
Per cent
-6.0
May-02
2.0
May-01
-4.0
May-00
4.0
May-99
-2.0
May-98
6.0
May-97
0.0
May-96
8.0
May-95
2.0
May-94
10.0
May-93
4.0
May-92
12.0
May-91
6.0
May-90
14.0
May-89
Per cent
Source: ABS Labour Force
State Economies still have widely differing growth rates
State Economic Growth
Per cent
7.0
6.3
6.2
6.0
5.6 5.5
5.0
4.9
5.0
4.0
3.6
4.6
4.0
3.6
3.0
2.7
3.0
2.0
6.0
2.1
1.8
0.8
1.0
0.0
NSW
VIC
Source: ABS; HIA Economics Group
QLD
SA
2006-07
WA
2007-08(f)
TAS
NT
ACT
Australia’s Economy – slowing down
Australia's GDP
Source: ABS 5206.2
7.0
6.0
4.0
3.0
2.0
1.0
0.0
-1.0
Seasonally adjusted
Trend
Mar-2008
Mar-2006
Mar-2004
Mar-2002
Mar-2000
Mar-1998
Mar-1996
Mar-1994
Mar-1992
Mar-1990
-2.0
Mar-1988
Annual % change
5.0
The business investment sector – strong
Business Investment in Australia
22500
10000
20000
9000
8000
17500
7000
15000
10000
4000
7500
3000
5000
2000
2500
1000
P&E (LHS)
Non-res building (LHS)
Engineering (RHS)
Mar-08
Mar-07
Mar-06
Mar-05
Mar-04
Mar-03
Mar-02
Mar-01
Mar-00
Mar-99
Mar-98
Mar-97
Mar-96
Mar-95
Mar-94
Mar-93
Mar-92
Mar-91
Mar-90
0
Mar-89
0
$ million
5000
Mar-88
$ million
6000
12500
Ju
nD 00
ec
Ju 00
nD 01
ec
Ju 01
nD 02
ec
Ju 02
nD 03
ec
Ju 03
nD 04
ec
Ju 04
nD 05
ec
Ju 05
nD 06
ec
Ju 06
nD 07
ec
Ju 07
n08
Retail Growth is slowing
Retail Turnover Growth (1/4ly) - after
inflation
4%
3%
2%
1%
0%
-1%
-2%
-3%
-4%
The Housing Industry
Sector 1: New home building
Building Approvals - Australia
20000
18000
Number
16000
14000
12000
10000
8000
Jun-84
Jun-87
Jun-90
Jun-93
Jun-96
Seasonally adjusted
Jun-99
Trend
Jun-02
Jun-05
Jun-08
Sector 1: New home building
Housing Starts 2007 (actual), 2008 (forecast)
30
23
20
2007
2008
12
10
34
11
4
0
0
-10
-7
-3
-5
-8
-7
-13-15
-20
-3
-5
-22
-30
NSW
VIC
QLD
SA
WA
TAS
NT
ACT AUST
Sector 2: Renovations and Additions
Renovations Investment in Australia
Mov ing annual total
30,000
28,000
26,000
$ million
24,000
22,000
20,000
18,000
16,000
14,000
• Total renovations spending grew last year while new home building was flat
Mar.2008
Mar.2007
Mar.2006
Mar.2005
Mar.2004
Mar.2003
Mar.2002
Mar.2001
Mar.2000
Mar.1999
Mar.1998
Mar.1997
Mar.1996
Mar.1995
Mar.1994
Mar.1993
Mar.1992
Mar.1991
Mar.1990
Mar.1989
Mar.1988
Mar.1987
Mar.1986
12,000
Sector 3: The Established Real Estate Market
• We won’t see a repeat of the strong house price growth of 2007 but …
• … talk of a house price crash is wide of the mark
Median House Prices
Sector 4: The Rental Market
Vacancy Rate, Capital Cities, March 2008
Source: REIA
Darwin
2.1
0.5
2.2
2.3
Hobart
• The biggest casualty of
the current housing
squeeze
Canberra
Perth
• Public housing supply
has all but disappeared
2.6
2.0
1.4
1.1
Adelaide
1.6
1.7
Tight Market
• Vacancy rates are at
crucially tight levels
1.8
Brisbane
2.2
1.6
1.6
Melbourne
1.0
1.0
Sydney
0.0
Mar-08
Easy Market
Dec-07
0.5
1.0
1.5
2.0
Per Cent
2.5
3.0
3.5
State by State
New South Wales
Victoria
• Facing the toughest housing conditions in
Australia thanks largely to Sydney
• The goldilocks state – not too hot and not too
cold
• New housing is a disaster – fewer than 30,000
home starts, typical land price at over $250,000,
total new house and land at $520,000.
• Strong employment growth and a robust
economy
• Some regional areas are faring much better
again
• New housing has greater potential than NSW
and Qld due to relative affordability and generous
FHB stamp duty discounts.
• Housing shortage blown out to 18,000 pa.
• Housing shortage around 6,000 pa.
Queensland
• The land of opportunity but it missed the
bus in 2005, 2006 …
• … but catching up now
• A huge infrastructure spend will turn things
around
• Rapid escalation in land prices through
chronic shortages – has stabilised recently
at $165,000
• … Housing has been hit very hard this
year , shortage to approach12,000 pa.
South Australia
• Favourable affordability and a boost to
population growth through migration
• Land is readily available although it’s been
rising in price - $130,000
• Wine and Mitsubishi have been a problem
but the state has managed these problems
reasonably well
• The kick from resources will be very large
Western Australia
• Oh dear…!
• With growth comes growing pains – no land, no labour, no housing
• Inflation in the west is more than 1.5 times that of eastern states while it has the second
least affordable housing market of the states.
• Land prices have escalated to as much as $276,000 per block
• There is, however, a large amount of work in the pipeline and the aggregate economy is
still booming
• Housing shortage to blow out to nearly 10,000 by 2008/09.
Trades and Building
Trade Prices and Availability
Home Building Trade Prices and Availability - Australia
Source: Housing Industry Association
Availability Index
Price Index
0.50
Trades in
Oversupply
130.0
0.30
120.0
0.10
110.0
-0.10
Trades in Short
Supply
100.0
Trade Availability (LHS)
Mar-08
Dec-07
Sep-07
Jun-07
Mar-07
Dec-06
Sep-06
Jun-06
70.0
Mar-06
-0.70
Dec-05
80.0
Sep-05
-0.50
Jun-05
90.0
Mar-05
-0.30
Trade Prices (RHS)
• Trades are still in short supply and that means significant upward pressure on contractor
rates.
Trade Prices and Availability
Trade Availability - by Region
Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08
Sydney
0.11
-0.20
-0.03
0.04
-0.21
-0.07
0.03
-0.14
-0.10
-0.14
-0.30
-0.30
-0.12
Regional NSW -0.25
-0.10
-0.14
-0.26
-0.09
-0.10
0.46
-0.07
-0.18
-0.23
-0.17
-0.25
-0.11
Melbourne -0.26
-0.10
-0.28
-0.25
-0.23
-0.42
-0.29
-0.23
-0.25
-0.27
-0.29
-0.37
-0.37
Regional Vic -0.52
-0.43
-0.41
-0.36
0.38
-0.14
-0.20
-0.22
-0.09
-0.20
-0.37
-0.23
-0.08
Brisbane -0.48
-0.53
-0.85
-0.58
-0.59
-0.47
-0.44
-0.56
-0.60
-0.69
-0.76
-0.66
-0.57
Regional QLD -0.34
-0.45
-0.68
-0.83
-0.64
-1.00
-0.73
-0.80
-0.60
-0.76
-0.81
-0.65
-0.33
Adelaide -0.67
-0.47
-0.73
-0.35
-0.32
-0.58
-0.31
-0.17
-0.13
-0.24
-0.97
-0.79
-0.69
Regional SA -0.50
-0.17
-0.80
-0.44
-0.54
-0.29
-0.60
-0.60
-0.40
-0.40
-0.44
-0.40
-0.30
Perth -0.76
-0.94
-0.92
-0.83
-1.10
-0.92
-0.95
-0.71
-0.82
-0.93
-0.68
-0.62
-0.30
Regional WA -1.17
-1.33
-0.50
-1.00
-0.67
-1.00
-0.75
-0.70
-0.89
-0.60
-0.20
-0.85
-0.60
All of Australia -0.34
-0.35
-0.35
-0.43
-0.41
-0.42
-0.37
-0.41
-0.43
-0.46
-0.51
-0.46
-0.40
*Note: Critical Short Supply is between -2 and -1, Moderate Short Supply is between -1 and 0, In balance = 0
Moderate oversupply is between 0 and 1, and massive oversupply is between 1 and 2.
Source: HIA Austral Bricks Trades Report
Quarterly Movement in
Availability
=
The Built Form – House Size
Average Size by Outer Wall - AUS
Source: Unpublished ABS data
290
280
270
260
250
240
230
• For housing, affordability and energy concerns has seen house sizes ease of late
Dec Qtr 07
Jun Qtr 07
Dec Qtr 06
Jun Qtr 06
Dec Qtr 05
Jun Qtr 05
Dec Qtr 04
Jun Qtr 04
Dec Qtr 03
Jun Qtr 03
Dec Qtr 02
Jun Qtr 02
Dec Qtr 01
Jun Qtr 01
Dec Qtr 00
220
The Future
National Housing Policies
The Supply side: the tight rental market
National Rental Affordability Scheme (NARS)
•
Initially involves an investment of $623m by the Government to private
investors and is aimed at increasing the supply of residential dwellings for
those on Commonwealth Rent Assistance
•
Expected to create 50,000 new affordable rental properties over the next
5 years throughout Australia by providing private investors with tax
credits of $6,000 (+$2000 from the States) a year for 10 years for
properties that are rented at 20 per cent below the prevailing market.
•
Possible extension to funding for a further 50,000 dwellings from 2011/12
depending on success of scheme.
National Housing Policies
The Supply side: Infrastructure provision
Investment in Residential Infrastructure (Housing Affordability Fund)
• Close to HIA’s suggested Residential Infrastructure Fund
• $500m competitive grant scheme to reduce state and local government
infrastructure charges on new developments
• Under the plan local governments will apply for funding via a competitive
process for grants to cover part of the cost of infrastructure to support
new residential development
• Expected to reduce the price of serviceable land
National Housing Policies
The ‘Demand’ side: a savings vehicle
Home Super Saver Accounts
•
Based on HIA Home Super Saver Scheme
•
Announced by Federal Treasurer earlier this year
•
Savings of up to $5,000 per year will be eligible for a government
contribution (minimum of 15%) paid directly into the Home Super Saver
Account.
•
Account earnings taxed at statutory tax rate of 15%.
•
The minimum saving period is four years with individual contributions of
at least $1,000 in each of the years.
Housing Forecasts
Renovation Forecasts
HOUSING RENOVATIONS FORECAST: by state and territory
Value of investment, $ million, Chain Volume Measure
2002/03 (a)
2003/04 (a)
2004/05 (a)
2005/06 (a)
2006/07 (a)
2007/08
2008/09
2009/10
2010/11
% change
2003/04
2004/05
2005/06
2006/07
2007/08
2008/09
2009/10
2010/11
(a) = actual
NSW
9,363
9,972
9,791
9,041
8,596
8,869
8,835
9,100
9,737
Vic
5,959
6,629
6,370
5,940
6,375
6,980
7,116
7,188
7,763
Qld
6,194
6,057
6,365
6,719
7,575
7,586
7,794
8,028
8,590
SA
1,570
1,917
1,936
1,911
2,141
2,138
2,219
2,264
2,400
WA
3,217
2,913
3,066
3,033
3,370
4,048
3,531
3,531
3,813
Tas
517
676
657
678
713
763
723
738
760
NT
191
177
255
276
230
200
245
258
273
ACT
351
375
333
349
332
365
364
371
380
Aust
27,284
28,761
28,775
27,945
29,333
30,594
30,692
31,306
33,341
7
-2
-8
-5
3
0
3
7
11
-4
-7
7
9
2
1
8
-2
5
6
13
0
3
3
7
22
1
-1
12
0
4
2
6
-9
5
-1
11
20
-13
0
8
31
-3
3
5
7
-5
2
3
-7
44
8
-17
-13
23
5
6
7
-11
5
-5
10
0
2
3
5
0
-3
5
4
0
2
7
Some points to take away
• The world economy will slow but it won’t fall over.
• Economic growth in Australia is likely to slow significantly in 2008/09.
• The divide between the housing ‘haves’ and the housing ‘have nots’
will be with us for some time.
• Housing starts will go backwards in 2008/09 down 6% – QLD, WA,
VIC hit hard!
• The renovations sector is looking a little healthier again.
• Lower interest rate environment will boost housing, but this will be
more a 2009/10 story.
• Strong underlying demand for housing means the long term
prospects for the industry remain positive.
Ben Phillips
Assistant Director – Industry
Aug 2008
http://economics.hia.asn.au