The Australian Building Industry: where are we and where to?

1. The Australian Building Industry: where are we and where to? Harley Dale HIA Chief Economist Plumbing Supply Forum Sydney May 2012

2. It’s (apparently) all about Europe

3. An Economic Health Check – Australia • The question is who is feeling the love?

4. An Economic Health Check – interest rates

5. The Australian Consumer • Consumer confidence has been battered around and … • …never sustainably recovered post GFC. • People don’t ‘feel’ like we’re the strongest economy in the world. • So what needs to change?

6. The Australian Consumer • During the GFC, the unemployment rate peaked at less than 6 per cent because .... • … we have a more flexible labour market than in decades up to the 2000’s and … • … we reduced the number of hours worked as well as laying people off. • What about this time?

7. The Housing Industry

8. Sector 1: New Homes • New housing starts have fallen heavily since the GFC-related stimulus ended. • Annualised level of around 134,600 on last count. • Underlying demographic demand of around 167,000 per annum. • We last built 180,000 homes in a year in the mid 1990’s.

9. Sector 1: New Homes • Dwelling Approvals – the heartbeat indicator of the new home industry. • Approvals have headed back to GFC-like levels. • HIA began warning of this in late 2010 and … • … began dialogue with the Federal government in early 2011.

10. Sector 1: HIA New Home Sales • HIA’s new house sales is based on a survey of Australia’s 100 largest volume builders. • Sales have just bounced from a multi-decade low and … • … the share of large volume builders in total construction is falling.

11. Sector 1: New Homes • New home lending appears to have bottomed out and, encouragingly … • … may be ticking slightly higher. • There is a long way to go, but it’s a start.

12. Sector 1: New Homes (and existing) • Total loans for both first time and trade-up owner occupiers are on the rise. • The recovery is from a low starting point, especially for FHB’s, but ... • … the signs are encouraging. • We need both these markets firing.

13. Sector 2: Renovations activity • Total renovations activity hit a record high in 2011. • Renovation jobs are perceived to be not as popular when home values aren’t rising, but … • … is the dynamic changing?

14. Sector 2: Renovations activity • Major ‘alts and adds’ are trending down. • They make up around 20% of total renovations. • These can be very big jobs, but there are now fewer of them.

15. Sector 2: Renovations activity

16. Sector 3: The Established Real Estate Market • The recovery in lending for established property petered out at the end of last year and … • … the number of property transactions remain historically low amidst … • … what remains a buyers market.

17. Sector 3: The Established Real Estate Market

18. Sector 3: The Established Real Estate Market

19. Sector 4: The Rental Market • The real casualty of the current housing squeeze. • Vacancy rates are at tight levels and have been for many years. • This is a social and economic problem.

20. Sector 4: The Rental Market • Residential investment lending is historically low … • … but lending for investment in new stock is slowing climbing higher.

21. State by State

22. New South Wales Was the goldilocks state for many years – not too hot and not too cold. Is coming off a massive building boom. There is potentially a lot of downside to housing in Victoria, and… … the risks are mounting. Victoria is a lesson in relative new home affordability. Victoria • Housing in NSW has under-performed for close to a decade now. • There have been numerous policy failures. • There is hope the current government can turn the ship. • The clock is ticking for a sustainable turnaround to take effect. • NSW is Australia’s largest state but only built the third highest number of new homes for five consecutive years.

23. NSW New Building Approvals

24. Victoria New Building Approvals

25. NSW Major Alterations and Additions

26. Victoria Major Alterations and Additions

27. Queensland The “10,000” state became the “12,000” state. SA was known as a relatively stable market for a long time. Now it is the “<10,000” state. The kick from resources will be large but … … there needs to be action now on housing and … … there are some positive indications. South Australia • Queensland has become the weakest housing market in Australia. • New home building costs became too high as QLD looked to copy the worst performer, NSW and .... • … the credit crunch hit QLD harder because of a larger reliance on regional ‘banks’. • The medium term prospects are good but.. • …conditions are still very tough.

28. QLD New Building Approvals

29. QLD Alterations and Additions

30. SA New Building Approvals

31. SA Alterations and Additions

32. Western Australia Along with SA, Tasmania was the over-achieving state last decade. A relatively affordable housing market together with a ‘late to the party pass’ means Tassie largely skipped the ‘recession’ and … … was for a long time a consistent and relatively strong economy. That is no more and we need to prepare for lower average levels of activity which in 2012 is occurring rapidly. Tasmania • With growth again come the same old challenges. • The WA economy is back on fire, but ... • … housing has again been left behind. • There has been some improvement in sentiment again since late 2011, but with that comes ... • … concern about residential land availability and skilled labour availability.

33. WA New Building Approvals

34. Tasmania New Building Approvals

35. WA Alterations and Additions

36. Tasmania Alterations and Additions

37. The Short Term Future

38. Housing Starts Outlook

39. Renovation Forecasts

40. The Built Form – Types of Dwellings

41. Why can we be positive about the future?

42. The potential is enormous …

43. … and huge opportunities exist

44. Thank you for your time this morning Harley Dale HIA Chief Economist May 2012 http://economics.hia.com.au