Australian Housing and Renovation Markets

1
Australian Housing and Renovation Markets Ben
Phillips Assistant Director Industry June
2008
2
The World Economy and Us where to?

• The world economy is slowing and the prime
  culprit is the United States
• Canada, Europe, the U.K., and Japan are slowing
  and ...
• interest rates are either falling or on hold in
  these economies.
• East Asia (ex Japan) is holding up well.
• If were right on China then Australia is fine
  if were wrong on China, Australias buggered.
• Australias biggest risk to growth lives right
  here at home

3
The domestic interest rate outlook is still very
uncertain

• The risk of one more official rate rise to come.
• Rates are still rising while the RBA sits on its
  hands.
• Further rate rises will depend heavily on the
  June ¼ CPI figure (Mid July) and wages outcomes.
• No fall in rates in 2008
• Interest rates are expected to start coming down
  in 2009/10.

4
Consumer confidence is getting battered
5
as is home buying confidence, but
6
the labour market story is nothing short of
exceptional
7
Australias Economy is slowing
8
State Economies still have widely differing
growth rates
9
The retail sector slowing
10
The business investment sector strong
11
The Housing Industry
12
Sector 1 New home building
13
Sector 1 New home building
14
Sector 2 Renovations and Additions

• Renovations, additions, and repairs have been the
  unsung hero for the housing sector

15
Sector 2 Renovations and Additions

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

16
Sector 3 The Established Real Estate Market

• Mature, trade up buyers/renovators are the king
  of the castle

17
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

18
Sector 4 The Rental Market

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

19
4. The Rental Market

• Yields remain low.
• Perth, Melb and Syd offer the lowest yields
• Perth had the strongest yield growth.

• Rents growing strongly.
• Highest rents in Darwin, Canberra, Syd.
• Growing strongest in Melb, Perth.

20
State by State
21

• 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
• Economic growth in 2007/08 will be the fastest
  since 1999/00

• Victoria
• The goldilocks state not too hot and not too
  cold
• Very strong employment growth and a robust
  economy
• New housing has greater potential than NSW
• Land is relatively affordable as are house and
  land packages
• Housing Affordability is the best of the four
  largest states

22

• 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
• Very poor infrastructure and transport systems
  have affected the liveability of SEQ and could
  slow population growth
• but Queensland still has one of the two
  strongest economies in Australia!

• South Australia
• The 10,000 state
• 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

23

• 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 least
  affordable housing market
• 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

24
Trades and Building
25
Trade Prices and Availability

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

26
Trade Prices and Availability

• Greatest shortage exists in Roofing, painting
  and plastering.

27
The Built Form House Size

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

28
The Future
29
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.

30
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

31
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.

32
Housing Forecasts
33
Renovation Forecasts
34
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 struggle to recover in
  2008/09.
• The renovations sector is looking a little
  healthier again.
• There is no quick fix for tight rental markets
  and very low housing affordability, but there is
  a greater cause for optimism.

35
Ben Phillips Assistant Director Industry June
2008 http//economics.hia.asn.au