new housing and renovations outlook the outlook for the housing industry ben phillips hia senior...

New Housing and Renovations OutlookNew Housing and Renovations Outlook

The Outlook for the Housing IndustryThe Outlook for the Housing Industry

Ben PhillipsHIA Senior Economist

Sydney – Plumbing Sector Forum

June 1, 2010


Where are we heading?Where are we heading?


Australian EconomyAustralian Economy

• RBA is forecasting a return to trend economic growth in 2010, with an upside risk• RBA is forecasting growth of 3.75% in both 2010/11 and 2011/12

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Gross Domestic ProductSource: ABS 5206

Qtrly Annual


The China boost will be a big part of that growthThe China boost will be a big part of that growth


Unemployment rate has now peakedUnemployment rate has now peaked

• Australia’s unemployment = 5.4% - well down on the dire forecasts (8.5%) of one year ago.


Interest rate hiking cycle well under wayInterest rate hiking cycle well under way

• The RBA lifted the cash rate by 25bps in May, the sixth hike in the last seven meetings.

• More to come, but uncertainty as to how many.

• Housing affordability will gradually worsen.

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Interest Rates, Australia, RBA

Standard Variable Mortgage Rate RBA Cash Rate

Source: RBA


Federal Budget 2010/11Federal Budget 2010/11Costs of living and taxation• 50% discount on up to $1,000 on interest income• Standard deduction to simplify the tax systemSkills and infrastructure• $661 million for the Skills for Sustainable Growth strategy• $5.6 billion for a new infrastructure fund and $1 billion to renew rail networksRenewable and energy efficiency• $652 million Renewable Energy Future FundGrowing the economy• Resource Super Profits Tax from 1 July 2012• Company tax rate cut to 29% in 2013-14 and 28% from 2014-15• Company tax rate cut to 28% from 2012-13 for small businesses• From 1 July 2012, instant asset write off for small business assets <$5,000Superannuation• Increasing the super guarantee to 12%National Health and Hospitals Network• Additional $2.2 billion to meet the needs of the “modern health system”


Resources Super Profits Tax & HousingResources Super Profits Tax & Housing• The Government will place a 40% tax on super profits from resource projects. • The tax will be placed on profits after allowing for extraction costs, recouping capital investment and after

providing shareholders with a normal return on their investment. • The new tax will be phased in over five years from 1 July 2012.• The existing state royalties regime (whereby resources firms paid tax to the State Government on the level of

production) will be retained, but the Federal Government will refund these payments back to the mining companies

• Main reasoning behind the implementation of the RSPT is that taxes from the mining sector have more than halved as a proportion of profits over the last decade

Impact on housing• Because the tax will apply to any non-renewable resources extracted from the ground, it will affect a range of

raw materials used in residential building• Companies mining key resources for residential building, such as sand and gypsum, will be affected• The flow on impact could be higher prices for raw materials as mining companies potentially try and restore

returns to previous levels• In some instances there will be a world price and the ability of firms to charge beyond that price may be difficult• Some building products that may be impacted: steel, concrete, bricks, glass and plasterboard


New HousingNew Housing


The starting pointThe starting point

• Back into trend territory but population growth has doubled in the past 5 years!

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Australia Dwelling Starts, ABS, Quarterly


What happened in 2009 was poor …What happened in 2009 was poor …

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New South Wales Victoria Queensland South Australia Western Australia Tasmania Australia

% C

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Change in the Number of Housing Starts, 2009Source: ABS 8752; HIA

• National housing starts fell 4% in 2008 and by 7% in 2009


Sustainable recovery? LandSustainable recovery? Land

• Land sales were 0.8% lower than in the Dec 2008 quarter• Median land price was 13.1% higher than in the Dec 08 quarter

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$

Median Residential Land Prices -AustraliaSource: RP Data

No. of sales Price


Sustainable recovery? Housing financeSustainable recovery? Housing finance

• New home lending fell by 15% in the March 2010 quarter.• Obvious tapering off since the withdrawal of the FHOB (from October 2009 onwards)

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AUST New Home Lending - Number of LoansSource: ABS Housing Finance; HIA

Total New Loans Construction of dwellings Purchase of new dwellings


Sustainable recovery? Housing financeSustainable recovery? Housing finance

• After the withdrawal of FHB’s, the housing recovery now depends on upgrade buyers and investors• Non-FHB segment down 44%, compared with a decline of 8% nationally

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FHB Non-FHB

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First Home Buyer versus Non-First Home Buyer LoansSource: ABS Housing Finance

3mths to Mar 09 3mths to Mar 10

% change: -44%

% change: -8%


Sustainable recovery? Building ApprovalsSustainable recovery? Building Approvals

• Detached house approvals were up 1% in the March 2010 quarter• Multi-unit approvals were up 12% in the March 2010 quarter• Overall up 4% over the March quarter

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Australia - Monthly Dwelling ApprovalsSource: ABS Building Approvals

Total Detached Houses Multi-Units


Not building enough houses

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Australia Underlying Demand vs Completions Forecast (000s)

UD Completions

Source: ABS, HIA


Housing starts forecast brighter but not bullishHousing starts forecast brighter but not bullish

Starts NSW Vic Qld SA WA Tas NT ACT Aust2003/04 (a) 45.72 45.33 44.22 10.39 22.55 2.85 1.04 2.89 174.992004/05 (a) 39.40 40.97 39.31 11.01 22.90 2.83 1.33 2.46 160.202005/06 (a) 32.92 39.35 37.72 10.78 25.90 2.56 1.35 1.87 152.452006/07 (a) 29.78 38.64 41.14 11.17 24.73 2.86 1.40 2.33 152.052007/08 (a) 31.50 41.71 44.83 11.89 22.48 2.90 1.05 2.26 158.612008/09 (a) 23.28 41.81 28.65 11.97 18.26 2.89 1.15 2.64 130.652009/10 31.20 50.14 32.84 11.63 22.71 3.11 1.40 3.75 156.772010/11 34.57 48.72 34.98 12.26 23.48 2.80 1.48 2.81 161.102011/12 36.04 46.89 40.03 12.30 23.47 2.75 1.51 2.66 165.64

% change:

2004/05 (a) -14 -10 -11 6 2 -1 28 -15 -82005/06 (a) -16 -4 -4 -2 13 -9 2 -24 -52006/07 (a) -10 -2 9 4 -5 12 3 24 02007/08 (a) 6 8 9 6 -9 1 -25 -3 42008/09 (a) -26 0 -36 1 -19 0 10 17 -182009/10 34 20 15 -3 24 8 22 42 202010/11 11 -3 7 5 3 -10 6 -25 32011/12 4 -4 14 0 0 -2 2 -5 3

HOUSING STARTS: by state and territorythousand dwellings commenced

Updated March 2010


Housing starts forecastHousing starts forecast

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New Housing Forecast, by Type, AUS Dwelling StartsSource: HIA Economics Group

Houses Units Total


First Home Buyer Affordability is a big issueFirst Home Buyer Affordability is a big issue

• The affordability index for Australia fell by 4% in the March 2010 qtr and 28.7% over 12 months. • Capital cities fell by more than regional areas on account of higher house prices.

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Housing Affordability in AustraliaSource: HIA Affordability Report

Australia Capital City Rest of State


The rental market – a dire lack of new stockThe rental market – a dire lack of new stock

• The real casualty of the current housing squeeze

• Vacancy rates are at crucially ‘tight’ levels …

• … and rents keep creeping up

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Capital City Vacancy Rates, March 2010Source: SQM Research


Investor lending – AustraliaInvestor lending – Australia

• Lending for construction was down 23% in March 2010 on the same month a year ago on a quarterly basis.

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Lending for Rental Properties - AustraliaSource: ABS Housing Finance

Existing (lhs) Construction (rhs)


RenovationsRenovations


Home values recovered strongly in 2009Home values recovered strongly in 2009

• House prices haven’t crashed despite the early-2009 ocean of commentary predicting they would crash.


Home prices are on the up almost across the boardHome prices are on the up almost across the board

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Sydney Melbourne Brisbane Adelaide Perth Darwin Canberra Australian Capitals

Quarterly change in home values - March 2010 Quarter Source: RP Data, Rismark International

Houses Units


Renovations – a sustainable recovery?Renovations – a sustainable recovery?

• Renovations activity has been buoyed by strong house price growth and positive news on the outlook for the labour market

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$ m

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Renovations Investment in AustraliaSource: ABS 5206


Major Alterations & AdditionsMajor Alterations & Additions

• Indicators of major alts and adds are trending higher

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Renovations and Additions Market -AustraliaMonthly Lending and Monthly Council Approvals

Lending for Alts and Adds Value of Council Approved Alts and Adds


The outlook for renovationsThe outlook for renovations

NSW Vic Qld SA WA Tas NT ACT Aust2003/04 (a) 10,497 7,033 6,885 2,077 3,432 745 219 406 31,4912004/05 (a) 10,305 6,757 7,236 2,097 3,612 723 314 359 31,5082005/06 (a) 9,516 6,303 7,638 2,070 3,573 745 339 377 30,6002006/07 (a) 8,966 6,701 8,531 2,298 3,935 778 282 356 31,8262007/08 (a) 8,886 7,253 8,173 1,959 4,719 836 216 395 32,4372008/09 (a) 8,477 7,139 7,658 2,136 4,358 854 222 322 31,1652009/10 9,050 7,383 8,333 2,270 4,822 840 277 390 33,3642010/11 9,321 7,678 8,666 2,315 5,015 857 291 398 34,5462011/12 9,601 7,909 9,099 2,361 5,265 865 306 410 35,928% change2004/05 -2 -4 5 1 5 -3 43 -12 02005/06 -8 -7 6 -1 -1 3 8 5 -32006/07 -6 6 12 11 10 4 -17 -6 42007/08 -1 8 -4 -15 20 7 -23 11 22008/09 -5 -2 -6 9 -8 2 3 -18 -42009/10 7 3 9 6 11 -2 25 21 72010/11 3 4 4 2 4 2 5 2 42011/12 3 3 5 2 5 1 5 3 4(a) = actual

HOUSING RENOVATIONS FORECAST: by state and territoryValue of investment, $ million, Chain Volume Measure


Other MattersOther Matters


Trade prices and availabilityTrade prices and availability

• Shortage of trades people will intensify due to increased building activity and a second round mining boom

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Price IndexAvailability Index

Home Building Trade Prices and Availability - AustraliaSource: HIA-Austral Bricks Trade Report

Trade Availability (LHS) Trade Prices (RHS

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es in

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pply


The built form – types of dwellingsThe built form – types of dwellings

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Australian Building Approvals - Trends in Building

1999 2004 2009 Mar QTR 2010


Key challenges aheadKey challenges ahead

• An ageing population and growing population poses enormous challenges and opportunities for both new housing and renovations.

• Sustainability of new home building recovery now depends on the return of upgrade buyers and investors to the residential property market.

• Affordable land supply, inequitable taxation on new housing, increased regulation (e.g. higher ‘star’ rating) pushing people towards existing housing stock, planning delays, and skilled labour shortages; are short, medium, and long term challenges.

• These issues have a recognition they haven’t had before and that is an encouraging start, but the clock is ticking …


THANK YOU FOR YOUR TIME THIS MORNING

Ben PhillipsHIA Senior Economist

June 2010

http://economics.hia.com.au

new housing and renovations outlook the outlook for the housing industry ben phillips hia senior...

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