Summer Property Forecast – A perspective from the Building Industry
At national level, the most recent new home building activity has become the success story of the Australian domestic economy. An impressive 195,936 new dwelling commencements are forecast for 2014/2015, which would represent growth of 7.7 per cent and cap a third year in a row where new home construction has increased in volume. Renovations investment has also shown signs of recovering, with a 0.5 per cent gain from a ten-year low of activity in 2013/2014. Renovations investment is forecast to grow at a faster pace of 2.8 per cent in 2015/16 and 3.2 per cent in 2016/17, bringing the total value above the $30 billion mark again for the first time since 2011/12.
In WA new dwelling commencements increased 21.1 per cent during 2013/2014 to 29,853. A projected decline of 14.4 per cent in 2014/2015 would take commencements to 25,552. Activity is forecast to decline over subsequent years. During 2013/2014, WA renovations activity declined by 7.9 per cent. Activity is projected to decline again in 2014/2015 by 4.7 per cent, before rising by 5.2 per cent in 2015/2016. This result would leave the value of the state’s renovations market at $3.89 billion.
Sounds great. Boom times ahead?
The phrase ‘boom’ has certainly been used when describing the new housing market, and it is true that this sector is performing well beyond the initial forecasts. However, the speed at which the housing market moves is in contrast to the implementation of reforms & policies deemed essential in keeping Australia’s standing as ‘the lucky country’ (Since the establishment of the OECD’s Better Life Index Australia has consistently been placed at the top of the pile). The building industry in Australia faces many challenges in the coming years, especially in housing our aging population & ensuring land supply pressures don’t continue to mount.
It is expected that interest rates will stay low for the rest of the year, with speculation of another rate reduction, but is another reduction really going to help? A rate reduction is always welcome, however this may result in more property transactions without addressing the real issues. As an indicator of land supply pressures, the national land supply market declined by some 16.7 per cent in the September quarter whilst price growth accelerated 3.3 per cent. Often land price pressures result in an increase in both building & land price, adding further unnecessary cost to the Australian people.
What is being done to ensure the building industry addresses the issues that we are facing?
The RBA (Reserve Bank of Australia) Governor Glenn Stevens has backed the MBA’s calls in addressing housing affordability to ensure that first homebuyers are not locked out of the housing market. The MBA released an eight-point Affordability Plan in August of 2014, which they continue to lobby. Hopefully now the MBA has received the full support of the RBA governor the affordability plan will begin to be implemented.
At a state level amendments are being considered to the State Planning Policy 3.1, as the policy continues to go through a stage of transition. The successful implementation of the Residential Design Codes (R-codes), as well as the ease of builders acquiring planning permission for buildings compliant with the R-codes are seen as essential in addressing the forthcoming problem of housing Australia’s aging population.
With the Intergenerational Report set to be released in the near future at a federal level, we look forward to the clarity that will be provided in our current economic outlook, as well as the debates ensued and reforms proposed as a result of the release of the document. We also hope that the document is well levelled, as speculation continues to mount the document may be used to suggest ‘we’re all doomed and need re-election to fix the problems given to us’.
Ultimately the policies and codes that are being implemented are attempting to combat the pressures currently placed on the Australian market through limited land supply and an aging demographic. Whether policy implementation relieves the current pressures surrounding land supply and achieves success in housing our aging demographic remains to be seen, we can only hope the release of the intergenerational report triggers action at a federal level.