Record new dwellings commencements, but 2015 outlook uncertain: HIA

A record number of new dwellings have commenced building in 2014, according to the spring 2014 edition of the Housing Industry Association’s (HIA) National Outlook.

HIA chief economist Harley Dale said that the growth in new residential construction has been slower to gather momentum.

“In aggregate, we will commence nearly 190,000 new dwellings in 2014, surpassing the previous record of 187,000 back in 1994,” said Dale.

“The momentum culminating in this milestone has provided a substantial boost to Australia’s economy at a crucial juncture in the cycle. Below trend economic growth and weak labour market outcomes would be considerably worse without the reach a new home building recovery is exerting into the broader economy.”

However, it’s uncertain as to whether these levels will push even higher over 2015 and 2016, with Dale noting that the reform initiative from policy makers hasn’t been evident.

“Record low borrowing costs have combined with other factors such as high net overseas migration to unleash substantial pent-up demand for new housing. These factors will keep the level of new homes commenced at historically elevated levels,” he said.

“However, what the economy needs is further growth in new home building over the next couple of years, but that will only occur as a consequence of taxation and regulatory reform.”

Despite the increase in new homes, renovations investment have not been as prominent with a 0.3% increase in 2013/2014 from a decade low.

“Unemployment concerns, a lack of available credit, and an elevated household savings rate are but three elements in the current environment which mean there has not been room for a renovations recovery alongside new home building activity and existing property price growth,” Dale said.

Even so, 0.9% growth in renovations investment over 2014/2015 is expected to be pushed up by 2% in the next three years.

In New South Wales, new dwelling commencements over 2013/2014 was up 16.2%, after 30.8% growth in 2012/2013. Another 9.3% growth is forecast by the HIA for this financial year, with activity to ease over the next financial year onwards.

Bullish expectations are in place for Queensland, with 20.3% growth over 2013/2014, after a modest 2.8% growth level in 2012/2013. Another 8.4% growth is expected in 2014/2015 with further higher levels of growth in the years following.

Victoria saw a 0.7% uptick in 2013/2014, after a 0.1% decline in 2012/2013.

Meanwhile, South Australia saw a 20.8% uptick in 2013/2014, after a 3.4% drop in 2012/2013. A 7.4% decline is forecast in 2014/2015, before bouncing back in the next financial year to the tune of a 5.7% uptick, followed by another bullish year of 4.1% growth in the subsequent financial year.

Western Australia’s peak was in 2013/2014, with a 3.2% decline this year and substantial declines of 10% and 5.7% tipped for the next two financial years.

New dwelling commencements in Tasmania are expected to rise over this financial year by 13.8% and by 3.2% in 2015/2016. The dwelling approvals figure is then expected to drop by 4.0%.

The Northern Territory’s commencements fell 16.7% in 2013/2014, and further declines are expected over this financial year and next, with 2.1% and 12.1% drops respectively. A recovery is in sight for 2016/2017, according to HIA predictions.

The ACT has also been recording strong declines that will not recover until 2016/2017, at which time it will increase 8.5%. After a drop of 10.2% in the last financial year, declines of 13.5% and 7.6% are expected for 2014/2015 and 2015/2016 respectively.