The Housing Industry Association (HIA) has today released its Spring 2013 edition of its National Outlook, which forecasts a moderate pick-up in dwelling construction, but a big recovery in renovation activity. It also argues that a sustainable pick-up in dwelling construction is unlikely unless structural supply-side barriers are tackled:
“The improving level of dwelling commencements achieved in 2012/13 will be consolidated this year before moving up a further leg in 2014/15,” commented HIA Senior Economist, Shane Garrett. “Meanwhile, renovations investment is expected to grow in a majority of states and territories after falling to a ten year low during 2012/13,” added Shane Garrett.
“Growth in housing starts during 2013/14 will be concentrated in large states like NSW, Queensland and WA,” noted Shane Garrett. “Growth in renovations will be much more broad-based, with increases occurring across most states”.
“Looking further ahead, we see dwelling commencements lifting above the 170,000 per year mark by 2016/17, matching the highs achieved during the post-GFC stimulus,” remarked Shane Garrett. “Over this timeframe, renovations activity is also likely to increase steadily, reaching $30.3 billion by 2017/18.”
“Record low interest rates and strong population growth is driving increased demand for housing. In this context, it is absolutely crucial that planning reforms and infrastructure delivery facilitate the requisite supply of new housing. There currently exist many bottlenecks around land supply, infrastructure and the time taken to achieve planning approval for new dwellings. It is important that both federal and state governments address these obstacles and work with the housing industry in delivering a sufficient supply of affordable housing,” concluded Shane Garrett.
Let’s assess the situation for a moment. We have record low interest rates, established house prices rising, widespread stimulus aimed at first time buyers of newly constructed dwellings, and near record population growth, and yet housing starts are forecast to rise only modestly to 164,000 homes by 2015-16.
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Clearly, unless reforms are made to: free-up land supply and competition amongst land holders and developers; reduce taxes and regulatory changes on development; steamline development approval processes; and improve the provision of housing-related infrastructure, then the cost of new homes are likely to remain above what most people can afford or are willing to pay, and the construction pick-up will remain muted.
Continuing to pump demand via cheap credit and home buyers grants will provide a modest short-term sugar hit to construction (as it did in 2009-10), but it does nothing to fix the underlying structural barriers that prevent affordable and desirable houses from being supplied to the market.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
