Jump in housing start figures unexpected but welcome

Jump in housing start figures unexpected but welcome
Larry SchlesingerJune 14, 2011

Housing starts have risen 3.1% for the March quarter of 2011, according to the latest ABS data.

On an annualised basis, the number of home starts has risen from 154,000 to 158,000.

The increase has surprised economists at investment bank UBS, which had forecast a 4% decline in starts on the back of continued weakness due to natural disasters.

Another positive surprise noted by UBS is “medium density” commencements – apartments and townhouses – which have jumped 14.6% for the quarter, and are up 36.0% year on year.

Queensland (up 12.8%, after a fall of 4.5% in the December 2010 quarter) and New South Wales (up 7.7% after falling 0.7%) were the main contributors of what UBS has called an overall solid result.

“Looking ahead, floods repair work and reconstruction in Queensland could boost second quarter housing starts,” UBS economist Alvin Pontoh says.

Pontoh says the announcement in the Queensland state budget of a new $10,000 grant in Queensland for purchases for new homes should also help encourage housing starts.

“Key to the outlook from here will be the extent to which residential building approvals stay resilient in the face of lending for construction data that have been much weaker,” he says.

But HIA chief economist Harley Dale, while noting some positives in the latest results (particurlarly a 11.5% rise in “other dwelling” starts), says the “overall downward trend persists and has now extended into a second year”.

“Leading indicators point to further weakness ahead for housing starts, and the 2010-11 financial year is set to fall nearly 20,000 dwellings short of what was achieved last year,” Dale says.

“When underlying demographic demand is running at around 175,000 dwellings per annum and the number of homes started is heading in the wrong direction towards 150,000 in 2010-11 and then lower still, that’s hardly a recipe for cheer,” he says.

Aaron Gadiel, CEO of the Urban Taskforce, also highlights the overall downward trend – despite the strong quarterly performance.

“New home starts overall were 11.5% down on figures for the 2010 March quarter,”

Gadiel says. “Even when you factor out the declining government activity on public housing, the private sector was down by 2.5% when compared to the March quarter last year.”

A modest rise in housing starts was recorded in Victoria (1.8%).

The level of building activity in South Australia (down 2.9%), WA (down 4.5%) and Tasmania (down 9.3%) continues to decrease.

Private house commencements continue to fall, down 1.8% (down 19.5% year on year), the fifth consecutive quarterly fall, for a cumulative 21% drop since the peak in the fourth quarter of 2009.

Public sector commencements (which accounts for only 4% of the total) have fallen a further 12%, down 74% from its GFC fiscal stimulus peak.

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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