Australian Housing and Renovation Markets

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Australian Housing and Renovation Markets Ben
Phillips Assistant Director Industry August
2008
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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.

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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.

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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.

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Consumer confidence is getting battered
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Home-buying confidence probably has further to
fall
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the labour market story is nothing short of
exceptional
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State Economies still have widely differing
growth rates
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Australias Economy slowing down
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The business investment sector strong
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Retail Growth is slowing
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The Housing Industry
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Sector 1 New home building
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Sector 1 New home building
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Sector 2 Renovations and Additions

• Total renovations spending grew last year while
  new home building was flat

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Sector 3 The Established Real Estate Market

• We wont see a repeat of the strong house price
  growth of 2007 but
• talk of a house price crash is wide of the mark

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Median House Prices
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Sector 4 The Rental Market

• The biggest casualty of the current housing
  squeeze
• Public housing supply has all but disappeared
• Vacancy rates are at crucially tight levels

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State by State
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• New South Wales
• Facing the toughest housing conditions in
  Australia thanks largely to Sydney
• 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.
• Some regional areas are faring much better again
• Housing shortage blown out to 18,000 pa.

• Victoria
• The goldilocks state not too hot and not too
  cold
• Strong employment growth and a robust economy
• New housing has greater potential than NSW and
  Qld due to relative affordability and generous
  FHB stamp duty discounts.
• Housing shortage around 6,000 pa.

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• 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 its 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

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• 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.

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Trades and Building
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Trade Prices and Availability

• Trades are still in short supply and that means
  significant upward pressure on contractor rates.

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Trade Prices and Availability
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The Built Form House Size

• For housing, affordability and energy concerns
  has seen house sizes ease of late

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The Future
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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.

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National Housing Policies The Supply side
Infrastructure provision

• Investment in Residential Infrastructure (Housing
  Affordability Fund)
• Close to HIAs 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

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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.

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Housing Forecasts
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Renovation Forecasts
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Some points to take away

• The world economy will slow but it wont 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.

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Ben Phillips Assistant Director Industry Aug
2008 http//economics.hia.asn.au