New housing construction outlook gloomy, but Queensland a bright spot: HIA

The Housing Industry Association (HIA) has downgraded already modest expectations for new home construction over the next two financial years, but expects a strong pick-up in the Queensland, which appears to have bottomed out.

There are also more modest growth expectations for NSW and WA, albeit off historically low bases, but new home building in Victoria – Australia’s new home building capital – is set to fall sharply over the next two years, though it remains the top state for new home construction.

In a year where prominent building companies like Kell & Rigby, Reed Construction and St Hilliers Construction have collapsed, not to mention numerous smaller builders, the HIA expects new housing starts to fall by 14.1% to a level of 135,284 for the 2011-12 financial year.

This will be the seventh time in nine years that Australia has experienced a decline in new housing starts, with the 2011-12 figure just above figures recorded at the peak of the GFC.

The low point in new housing construction occurred around the December 2008 quarter – at the height of the GFC – when the HIA recorded new houses being built at an annualised rate of 130,548.

The HIA expects new housing starts before to pick up modestly in 2012-13 with growth of 4.9% to 146,600 starts, followed by a further increase of 4.4% in 2013-14, which would take starts to a level of 148,064.

These figures have been revised down from previous HIA forecasts of 137,820 starts in 2011-12, and a recovery reaching 151,200 starts by 2013-14.

The modest recovery forecast over the next two financial years is primarily focused around NSW, Queensland and Western Australia – states that are experiencing periods of historically low housing starts.

The outlook is strongest for Queensland, with the HIA optimistic of a recovery from 2012013 with new forecasts expected to rise by 13.3% from 25,370 to 28,745.

The forecast is even brighter for 2013-14, with the HIA expecting a 15.8% improvement to 33,286 starts.

The HIA says that NSW has “endured a synchronised trend decline in new home building and renovations activity of a duration unrivalled in Australia's post-war history”, which continues in 2012, with the industry group forecasting a 7.9% decline to 28,524.

However, the HIA forecasts growth of 18.2% in 2012-13 and 5.3% in 2013-14, taking starts to a level of 35,503, higher than a previous forecast level for 2013-14 of 33,830.

“Given the awful base we are forecasting a recovery from, 35,503 starts is not a bullish forecast,” says the HIA.

The HIA says Western Australia “continues to provide that rather quintessential example of how if you live in Australia but don't directly benefit from the resources boom, then times are challenging”.

“The economy is on fire, but new housing is extremely weak. Indicators like housing finance point to improved times ahead, but current planning problems will prove a huge set-back to a short-term recovery. The renovations sector, meanwhile, is slowing from a record high.”

The HIA is forecasting a 15.8% decline in WA housing starts in 2011-12 to come in at 17,510.

Victoria keeps its crown as the new home building capital of Australia, but the HIA is forecasting a 19.4% fall to a level of 47,690 in 2011-12 followed by a decline of 12.6% in 2012-13 and a further 3.5% fall in 2013-14 to 40,240 starts.

The HIA adds that the risk to this outlook remains on the downside.

Looking at the national outlook, HIA chief economist Dr Harley Dale says it now appears unavoidable that new housing will revisit levels experienced as a result of the GFC.

This, he says will be to the “detriment of thousands of businesses and households, not to mention the overall domestic economy”.

“We are experiencing a combination of softer housing demand and high-cost housing supply, which together mean that the nation is under-building by a significant amount. Put simply, Australian consumers are nervous about the global and domestic economies, and meanwhile around $200,000 of the price of a new home is due to taxation. It’s an unsustainable situation,” he says. 

“To improve the conditions facing new home building not only requires further interest rate cuts, but also Commonwealth and state government action to boost confidence and lift a substantial portion of the tax burden from new housing,” he says.

The HIA notes that the renovations sector has also showed signs of weakness in recent quarters, notwithstanding that total renovation investment hit a new record in 2010-11.

It expects renovation investment to fall by 1.5% to $29.5 billion in 2011-12, but to grow by 1.3% to $29.9 billion in 2012-13.

According to the federal government’s National Housing Supply Council 2012 report Australia accumulated a dwelling shortfall of 228,000 homes between 2001 and 2011 with the most acute shortage in NSW, with an estimated gap of 89,000 dwellings, followed by 83,000 in Queensland.