It says that to date the recovering in new home building has been driven by New South Wales and Western Australia and it predicts a broader based recovery in 2014 although Victoria could bring down national figures.
New dwelling commencements are forecast to hold largely steady at a little over 160,000 in the short term, before slowly recovering to around 170,000 by 2016/2017 but meeting the future housing requirements of Australia’s population will require a minimum 180,000 new homes per annum over coming decades.
The forecast report points out that this situation largely reflects new residential construction activity being at the fledgling stage of a recovery at a time when there are an unusually large number of variables influencing future demand and supply.
Overall new housing starts increased by 11% in 2012/20 following two consecutive years of decline which saw commencements bottom out at their third lowest level of the last 15 years. The same time that commencements posted this first round recovery, renovations activity hit a 10 year low.
The recovery has been led by two states. Dwelling commencements in New South Wales and Western Australia increased by 31% in 2012/2013 but if these two states are taken out of the equation then commencements increased by only 1% last year.
Data for the September 2013 quarter signal further upward momentum in dwelling commencements for both Western Australia and New South Wales, up 7,7% and 25.2%.
‘The key now is to observe further growth in commencements in these two markets against the backdrop of excessive and inefficient taxation and regulation, while seeing other geographical areas hitching a ride on the growth train,’ says the forecast.
‘That prospect appears increasingly likely. Nevertheless, we are optimistic that a sustained improvement in confidence, together with low interest rates, should assist the prospect of the nascent recovery gathering legs,’ it points out.
‘We consider it most likely that the two fast growth states to date maintain levels of dwelling commencements comparable to those in the latter half of 2012/2013 rather than continue along the strong upward trajectory we saw throughout 2012. This outcome would nevertheless still provide another strong annual increase of 11.1% and 8.5% for New South Wales and Western Australia, respectively in 2013/2014.
While the number of dwelling commencements in Victoria declined in 2012/2013, it was far less pronounced then we had anticipated. But the report says that this level of new home building is not likely to be sustained. Dwelling commencements in Victoria are forecast to decline by 17.5% in 2013/2014.
Beyond 2013/2014, activity levels in New South Wales, Victoria and Western Australia are forecast to remain at levels comparable with those for the current financial year. However, the recoveries in Queensland and South Australia are forecast to gather momentum and drive a modest increase in dwelling commencements nationally in 2014/2015. Further growth of 1.9% is forecast for 2015/2016 which would take starts back to a level around 164,000.
Among the five states forecast to increase in 2013/2014 Queensland is expected to be the strongest contributor, followed by Western Australia, South Australia and New South Wales. Nationally, detached house commencements are forecast to increase by 3.7% in 2013/2014 ahead of a 2.2% increase in 2014/2015 and a 6.4% gain in 2015/2016.
According to Harley Dale, HIA chief economist conditions in the residential building industry diverge widely both across and within states and territories.
‘Conditions in Western Australia’s residential building industry are currently the strongest in the country. Mining investment and strong population growth have seen Western Australia’s economy growing quickly, but until recently residential building had been stuck in the slow lane. The stronger conditions more recently have taken Western Australia to the number one position for the first time in over five years,’ he said.
Australian Capital Territory is second position with Victoria in third position. Dale pointed out that it is encouraging that the resurgence underway in New South Wales’ residential building industry is lifting the state up the table after spending the best part of the last decade in the wilderness.
New home building has been the driver of this outcome, but weaker conditions in the renovations segment have held back the state’s charge up the table. Overall, residential building conditions in New South Wales still rank only fifth nationally, but there is clearly some positive momentum there, he pointed out.
At the other end of the table, Tasmania is languishing in last place, continuing the run of four consecutive quarters on the bottom. ‘It was not so long ago, back during the financial crisis, that Tasmania was the top ranking state for residential building. Unfortunately, the state’s broader economy has undergone a marked deterioration since then and the weaker demand conditions delivered a big hit to the state’s residential building industry,’ he added.
