At an annual forecasting conference held in Sydney yesterday, BIS Shrapnel predicted a big pick-up in dwelling construction in Sydney. From the AFR:
Dwelling construction in New South Wales is likely to outpace the other states in the next few years, after years of low supply and pent-up demand…
NSW South Wales dwelling construction has the potential to be back at the peak levels unseen since the Olympics, BIS Shrapnel associate director Kim Hawtrey said.
Construction numbers slumped after the 2000 Olympics, and some recovery was made in the early 2000s after the Howard government launched the first home buyer’s grant. The numbers have ended to move down or sideways ever since…
“Wollongong and Newcastle is also on the rise, that’s being driven by retirees as well as younger people who cannot afford to buy in Sydney”…
He said NSW could look forward to the same gains [as Victoria] now that planning reform was under way and more land was being developed.
I agree with BIS’ assessment. If there is one market in desperate need of new dwellings, it is New South Wales, where construction levels have slumped as population has increased (see next chart).
In fact, at the end of 2012, dwelling construction rates in New South Wales were near the lowest level in 30 years, driven by a slump in detached house construction (see next chart).
With Sydney house prices rising strongly, the First Home Buyers’ Grant shifting to newly constructed dwellings, and the New South Wales Government taking a more liberal approach to planning and housing-related infrastructure, conditions are ripe for a decent cyclical construction uplift.
Indeed, forward indicators are looking positive. New South Wales dwelling approvals are increasing:
And new home finance is on the rise:
One big fly in the ointment is the excessive cost of land in Sydney, where serviced fringe housing blocks typically cost around $300,000. Such high land prices are likely to price many potential buyers out of the market, mitigating the intensity of the construction uplift.
Still, any pick-up in supply should be a welcome reprieve for Sydney’s long suffering renters and would-be first-time buyers.
