Thanks Gov’

The Urban Development Institute Australia – Queensland division has released its report (available at the bottom of the post ) on its expectations for the building industry in Queensland over the coming year. Their press release summarises the report.

While the June report is still dominated by bleak fundamental building activity figures, the Institute has pointed to various conditions and some early signs that the industry has bottomed and is likely to begin a bottom-up recovery led primarily by first home buyers.

While dwelling approvals have slid a further 18 per cent over the quarter, the most recent monthly observations show approvals are up on the lows of January and February. Full-time construction jobs were down 4090 in the May (reported) quarter, however, a rise in part-time construction employment of 6663 has resulted in an aggregate 2573 increase in total employment numbers.

UDIA Director of Economic Research and Policy, Duncan Maclaine, said the increase in part-time construction employment should translate into full-time employment as optimism returns to the industry over the coming months.

The UDIA report records an improvement in Brisbane housing affordability, which is likely to boost first home buyer activity and, along with a resources-driven jobs recovery, improve interstate migration.

“Housing affordability has improved marginally due to a period of falling prices, strong wages growth and stable interest rates,” Mr Maclaine said.

“First home buyers are slowly coming back and are becoming an increasingly larger share of the housing loan market.

“Queensland’s first home buyer loans as a proportion of owner-occupier loans is finally at the same level as the rest of the country, having been significantly lower since February 2009.

“With house prices predicted to remain fairly flat, and the addition of a $10,000 building grant on top of the $7,000 first home owner’s grant, we would expect to see further growth in first home buyer activity.

“An improvement in the availability of finance to developers and the introduction of infrastructure charging caps will also assist, particularly in some locations,” he said.

However, the Institute has cautioned against an overly optimistic reading of the report.

“We are not out of the woods yet,” Mr Maclaine said.

In case you were wondering who the UDIA are, their home page should clear it up for you.

UDIA (Qld) is the state’s largest professional organisation representing and furthering the interests and integrity of the property development industry in Queensland. With over 1100 corporate members representing more than 3000 affiliated individuals across a range of professions, UDIA (Qld) is a highly visible peak industry body.

We have a longstanding reputation for effectively influencing outcomes in the public and private sectors to ensure a viable future for our industry and quality outcomes for the community.

I think it is pretty clear that without the $10,000 building grant from the Queensland government that press release from this group would have read very differently. I do hope that the Queensland government afforded this industry that grant with the sole purpose of employment in mind, because their own report highlights the perverse logic used by industry groups to justify their calls for help from the government in the name of ” housing affordability”.

If you take a look at page 3 of the report you will find the following chart ( that you would never see from a bank ) and the following statement.

This  graph  tracks  the  home  buying  power  of  a  Brisbane  family  with  a   median  family  income  (25  year  mortgage,  10%  deposit,  30%  of  gross   income  on  repayments)  and  the  median  house  price  in  Brisbane.

House  prices  grew  strongly  from  2002,  creating  a  substantial   affordability  gap  for  a  Brisbane  family  earning  a  median  income  with  a   difference  of  approximately  $140,000  at  March  2011.

Removing  supply-­side  obstacles  and  reforms  to  reduce  the  excessive   cost  of  new  housing  are  needed  to  close  this  affordability  gap.

Over  the  last  six  months,  price  falls  combined  with  stable  interest  rates   and  strong  wages  growth  has  seen  some  narrowing  of  the  affordability   gap.

You will note that the last time the red and the blue line were closest together was just before effects of the first home buyers grant boost ( and other stimulus measures ) hit the market, as soon as it did those two lines began to move apart again. If you look closely at the graph and following paragraph on the next page of the report you may notice some correlation.

Dramatic  declines  in  the  numbers  of  home  loans  issued  during  2008   reversed  strongly  in  2009,  assisted  by  the  FHOG  boost  and  low   interest  rates.  Reduction  of  the  FHOG  grant  and  interest rate  rises   caused  new  declines.   Whilst  owner  occupier  loans  in  the  latest  month,  Apr-­11,  for  both  new   and  existing  home  purchase,  are  23%  higher  than  in  Jan-­11,  they   have  not  recovered  to pre-­flood  levels.  Owner-­Occupier  Loans  for  the  construction  or  purchase  of  a  new   home  were  28%  lower  in  the  April  quarter  compared  to  the  same   period  last  year,  and  15%  lower  for established  homes  (excluding   refinancing).   There  were  2,420  owner-­occupier  loans  for  new  construction  in  the   April  quarter␣around  75%  of  long-­term  average  levels.

As the median house price and affordability lines are now starting to head back towards each other this building industry group thanks the Queensland government for its latest handout, while stating:

“Removing  supply- side  obstacles  and  reforms  to  reduce  the  excessive   cost  of  new  housing  are  needed  to  close  this  affordability  gap.”

hmmm… , I am certainly a supporter of removing supply-side constraints in the housing market but those two graphs alone tell me there is a much simpler solution to closing the affordability gap in Queensland… and it would be much cheaper for the Queensland taxpayer.

The full report is below for your reading enjoyment.

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Comments

  1. “You will note that the last time the red and the blue line were closest together was just before the federal government introduced the first home buyers grant boost and as soon as they did those two lines began to move apart again.”

    I might be missing something, but it looks to me like the lines were last closest together around March 2009 (almost 6 months after the introduction of the boost) and started to move apart as the boost was wound down later that year.

    The affordability seems to have been driven quite heavily by interest rates which fell sharply in late 2008 into early 2009, but started rising later that year.

  2. Speaking of the cluster#$%^ that was the FHOG, over at BS, Gotti’s at it again.

    http://www.businessspectator.com.au/bs.nsf/Article/Julia-Gillard-Tony-Abbott-prime-minister-carbon-ta-pd20110623-J3SJ6?OpenDocument&src=sph

    He says
    ‘It’s not Julia Gillard’s fault that the Reserve Bank watched young and older middle class Australians borrow to the hilt and then, when they were locked, lifted interest rates sharply to curb mining boom related inflationary pressure’.

    Has he lost the plot?

    • No. He seems to be canvassing Gillard (on behalf of YellowBrickRoad?) for a fiscal intervention in the housing market – maybe increased FHOG?
      .
      But Gillard has parried that well enough: PM offers balanced budget to stressed mortgage holders
      .
      “Prime Minister Julia Gillard has offered the fiscal discipline of a balanced budget as the ultimate solution to the rising number of mortgage holders stressed by higher interest rates.”
      .
      IMHO, the scorecard reads
      Gillard:1 Gotti:0
      .
      LOL

      • My comments on BS (probably will never be published):
        .
        But, as per the other article published here, Gillard has offered the fiscal discipline of a balanced budget as the ultimate solution to the rising number of mortgage holders stressed by higher interest rates. She says “The best thing I can do is take interest rate and inflationary pressure down.”
        .
        Other than that, what else do you expect? An increased FHOG?? Come on, you can say it out loud.

    • Has he lost the plot?

      Gotti has not lost the plot, he is merely saying what his keepers tell him to say.

      Last year he was operating as a mouthpiece for the big miners when he railed against the mining tax.

      This year he is operating as a mouthpiece for the business lobby in non-mining Australia. In an extraordinary turn around, he is now suggesting that we deliberately restrain the mining investment boom to relieve the pressure from non-mining Australia.

      It all depends who he’s working for at the time.

    • That Bouris contribution (the chart) was incredible! It was the Michael Hudson quote in action!! Hudson being one of the few economists to predict the GFC.

      “The business plan of bank marketing departments is to capitalize any economic surplus into debt service. Loan officers see any net flow of income as potentially available to be captured as interest payments. Their dream of growth and financial success is to see the entire surplus capitalized into debt service to carry loans.”

  3. > might be missing something, but it looks to me like the lines were last closest together around March 2009 (almost 6 months after the introduction of the boost) and started to move apart as the boost was wound down later that year.

    Thanks BB, I have adjusted the post a little as you are correct about the dates, and I agree about the influence of IRs, however the correlation between prices and credit is clearly shown in the graph and the boost was a major component of that. If the RBA has simply lowered interest rates without the boost, in my opinion there is no way the growth in credit ( and therefore prices ) would have been as large and overall affordability would have been much greater as an end result.

    • Certainly agree with your conclusion that the boost and other stimulus measures have worsened affordability. It will be very interesting to look back in 12 months on what impact the new $10k building grant has (if any).

  4. I would actually agree with a short-ish (3-6 month) bottom on the QLD market, from some of the trends I am seeing on BurbWatch.

    In all honesty – and yes, sorry, I say it again – the market ti watch now in most states is the rental market – it is in far more stress (distributedly speaking) than the sales market…don’t let some short-term capital-city focused stats throw you into thinking otherwise.

    I am believing more and more than we have a rental “mini-bubble” to burst before the real sales bubble achieves its final downward mega-trend.

    hence, IMHO, expect an uptick in QLD and other states in the short-medium term (3-6 months??), with mounting rental pressures (ie. rental glut), before this then feeds into another round of sales gluts.

    Also…does anyone know where to get rental arrears information from? I’ve never seen it….

    • Torchwood1979

      Correct me if I’m reading this wrong – you predict QLD prices will have one last uptick because investors jump into this “buyers market”, which then exacerbates the current rental oversupply so that next year reality really hits and prices start again?

      • Not quite…

        Allow me to explain what i meant…

        By “uptick” I was referring to an improvement in QLD’s property purchase activity.

        This is likely to result in a slowing or even a peaking of QLD property sale listings, and even some reduction – which will be shouted from the rooftops, believe me! The bottom will be called by all the vested interests.

        Price declines are likely to slow, or even bottom out; IMHO, a price INCREASE, per se, is unlikely, but as buyers decide that they are “happy enough” with current prices they will get in – either because they just want to purchase, and are now simply happy with the current prices, or because they believe the bottom is actually, in and now is the “right tie” to get in on some discounts in the market, and ride some more capital gains “up on the next wave” that they may believe always happens.

        In truth, I believe the “uptick” has and is already happening right now, as has been underway since after the Easter Break, or thereabouts.

        Rental prices are likely, IMHO, to plateau in the short-term and commence a medium-term decline.

        As an expanded arguement, consider the following charts from BurbWatch (www.burbwatch.wordpress.com), with following interpretation by myself…

        FIRST: QLD Sales Listings appear to be peaking, with rental listings appearing to still be on an upward surge…

        http://burbwatch.files.wordpress.com/2011/05/qld-index.png

        SECOND: The fraction of sale stock being sold picked up significantly after the Easter Holiday break (late April, early May) – yes, the next set of data will be interesting, but there is a net recent uptrend, nonetheless…

        http://burbwatch.files.wordpress.com/2011/05/qld-relative-sales.jpg

        THIRD: There has been an increase in sales-price reduction responsivity (meaning a relative increase in the favour of current asking/negotiated prices) since the Easter Holidays (this is a recent national trend); Australia-wide char, but QLD is on the bottom…of course…

        http://burbwatch.files.wordpress.com/2011/05/aus-total-reduction-responsivity-index-qld-bottom.png

        …but with a strong uptick nonetheless…

        FOURTH: QLD’s relative sales stress (reduction density) is an a recent downward trend, likely indicating that Vendor’s, as a whole, are finding that they do not need to reduce prices as frequently as previous (ie. more buyers are accepting already discounted prices)…

        http://burbwatch.files.wordpress.com/2011/05/qld-relative-reduction-stress-sales-reduction-stress-much-lower.jpg

        Also notice that, as with just about every other state, the rental reduction stress (reduction density) is still much higher than the sales-prices reduction stress, as has been so for as long as I have been collecting data).

        FIFTH: If the following Sale-Rent Ratio chart, with an implied cycle to be extrapolated (with care!), is anything to go by, then QLD rental listings are “required” (I say that with a grain of salt!), to increase relative to the sales listings. Now there are a number of scenarios that could see that ratio decrease, but all of them basically require an increase in rental listings RELATIVE to sales listings – ie. more relative rental supply, less relative sales supply.

        http://burbwatch.files.wordpress.com/2011/05/qld-sale-rent-ratio-sale-rent-relative-supply-cycle.jpg

        Another way of looking at things, too, is that if vendors are having trouble moving their properties, and do not want to realise paper capital losses by dropping their prices further (at least at this point time), then they are likely to take the property off the market, or at least co-list it as a rental property; as many will/do choose the former (de-list as a sale, as a sale-listed rental is actually a rental put-off), then the supply of sales-listings is reduced, and the supply of rentals is, then increased; similarly for respective price reduction pressures – less pressure for the sale sector; more pressure for rental sector.

        …And i’m sure that govt policies and industry spruiking will help the sales sector increase activity and reduce/slow somewhat, too.

        And this could already be happening, if charts 3 and 5 are anything to go by – deflationary mindset has not entirely gripped even QLD just yet!

        So, all in all, to me at least, sales-sector pressure seems to be coming off the boil in QLD a little, and rental-sector pressure looks set to increase.

        That being said, i could be wrong; we’ll see, i guess 🙂

        Hope that made some sense!

        Regards,
        Stewart

        • …oh, and rental pressures make the rental sector less profitable (lower yields), which sees landlords become sales vendors again, push up the number of houses on the sales market, and start the final leg down of the housing sale price bubble.

          Stewart

          • Torchwood1979

            Thanks for the detailed explanation Stewart. Lines up with what I’m seeing as many vendors take their places off the market and rent them out while they wait for the market to go back up. They’ll be waiting…