Australian Housing and Renovation Markets Ben Phillips Assistant Director – Industry June 2008

1. Australian Housing and Renovation Markets Ben Phillips Assistant Director – Industry June 2008

2. The World Economy and Us – where to? • The world economy is slowing and the prime culprit is the United States • Canada, Europe, the U.K., and Japan are slowing and ... • … interest rates are either falling or on hold in these economies. • East Asia (ex Japan) is holding up well. • “If we’re right on China then Australia is fine; if we’re wrong on China, Australia’s buggered.” • Australia’s biggest risk to growth lives right here at home

3. The domestic interest rate outlook is still very uncertain • The risk of one more official rate rise to come. • Rates are still rising while the RBA sits on its hands. • Further rate rises will depend heavily on the June ¼ CPI figure (Mid July) and wages outcomes. • No fall in rates in 2008 • Interest rates are expected to start coming down in 2009/10.

4. Consumer confidence is getting battered …

5. … as is home buying confidence, but …

6. … the labour market story is nothing short of exceptional

7. Australia’s Economy is slowing

8. State Economies still have widely differing growth rates

9. The retail sector – slowing

10. The business investment sector – strong

11. The Housing Industry

12. Sector 1: New home building

13. Sector 1: New home building

14. Sector 2: Renovations and Additions • Renovations, additions, and repairs have been the unsung hero for the housing sector

15. Sector 2: Renovations and Additions • Total renovations spending grew last year while new home building was flat

16. Sector 3: The Established Real Estate Market • Mature, trade up buyers/renovators are the king of the castle

17. Sector 3: The Established Real Estate Market • We won’t see a repeat of the strong house price growth of 2007 but … • … talk of a house price crash is wide of the mark

18. Sector 4: The Rental Market • The real casualty of the current housing squeeze • Public housing supply has all but disappeared • Vacancy rates are at crucially tight levels

19. 4. The Rental Market • Yields remain low. • Perth, Melb and Syd offer the lowest yields • Perth had the strongest yield growth. • Rents growing strongly. • Highest rents in Darwin, Canberra, Syd. • Growing strongest in Melb, Perth.

20. State by State

21. New South Wales • Facing the toughest housing conditions in Australia thanks largely to Sydney • New housing is a disaster – fewer than 30,000 home starts, typical land price at over $250,000, total new house and land at $520,000. • Some regional areas are faring much better again • Economic growth in 2007/08 will be the fastest since 1999/00 • Victoria • The goldilocks state – not too hot and not too cold • Very strong employment growth and a robust economy • New housing has greater potential than NSW • Land is relatively affordable as are house and land packages • Housing Affordability is the best of the four largest states

22. Queensland • The land of opportunity but it missed the bus in 2005, 2006 … • … but catching up now • A huge infrastructure spend will turn things around • Rapid escalation in land prices through chronic shortages – has stabilised recently at $165,000 • Very poor infrastructure and transport systems have affected the liveability of SEQ and could slow population growth … • … but Queensland still has one of the two strongest economies in Australia! • South Australia • The “10,000” state • Favourable affordability and a boost to population growth through migration • Land is readily available although it’s been rising in price - $130,000 • Wine and Mitsubishi have been a problem but the state has managed these problems reasonably well • The kick from resources will be very large

23. Western Australia • Oh dear…! • With growth comes growing pains – no land, no labour, no housing • Inflation in the west is more than 1.5 times that of eastern states while it has the least affordable housing market • Land prices have escalated to as much as $276,000 per block • There is, however, a large amount of work in the pipeline and the aggregate economy is still booming

24. Trades and Building

25. Trade Prices and Availability • Trades are still in short supply and that means significant upward pressure on contractor rates.

26. Trade Prices and Availability • Greatest shortage exists in Roofing, painting and plastering.

27. The Built Form – House Size • For housing, affordability and energy concerns has seen house sizes ease of late

28. The Future

29. National Housing Policies The Supply side: the tight rental market • National Rental Affordability Scheme (NARS) • Initially involves an investment of $623m by the Government to private investors and is aimed at increasing the supply of residential dwellings for those on Commonwealth Rent Assistance • Expected to create 50,000 new affordable rental properties over the next 5 years throughout Australia by providing private investors with tax credits of $6,000 (+$2000 from the States) a year for 10 years for properties that are rented at 20 per cent below the prevailing market. • Possible extension to funding for a further 50,000 dwellings from 2011/12 depending on success of scheme.

30. National Housing Policies The Supply side: Infrastructure provision • Investment in Residential Infrastructure (Housing Affordability Fund) • Close to HIA’s suggested Residential Infrastructure Fund • $500m competitive grant scheme to reduce state and local government infrastructure charges on new developments • Under the plan local governments will apply for funding via a competitive process for grants to cover part of the cost of infrastructure to support new residential development • Expected to reduce the price of serviceable land

31. National Housing Policies The ‘Demand’ side: a savings vehicle • Home Super Saver Accounts • Based on HIA Home Super Saver Scheme • Announced by Federal Treasurer earlier this year • Savings of up to $5,000 per year will be eligible for a government contribution (minimum of 15%) paid directly into the Home Super Saver Account. • Account earnings taxed at statutory tax rate of 15%. • The minimum saving period is four years with individual contributions of at least $1,000 in each of the years.

32. Housing Forecasts

33. Renovation Forecasts

34. Some points to take away • The world economy will slow but it won’t fall over. • Economic growth in Australia is likely to slow significantly in 2008/09. • The divide between the housing ‘haves’ and the housing ‘have nots’ will be with us for some time. • Housing starts will struggle to recover in 2008/09. • The renovations sector is looking a little healthier again. • There is no quick fix for tight rental markets and very low housing affordability, but there is a greater cause for optimism.

35. Ben Phillips Assistant Director – Industry June 2008 http://economics.hia.asn.au