HIA: dwelling construction to fall for next 3 years

The Housing Industry Association (HIA) has released its latest National Outlook, which forecasts a 10% decline dwelling starts this financial year, from 232,540 to 209,050, with a further 16% fall forecast for 2017-18, before another 5% decline in 2018-19; although the HIA admits there are downside risks to its forecasts (see next chart).

ScreenHunter_14598 Aug. 24 13.37

According to the HIA:

“As the down cycle in new home building unfolds, the record pipeline of medium/high density dwellings in particular creates considerable uncertainty as to the timing and magnitude of the decline in construction.”

HIA’s forecasts are for a peak of over 232,500 new dwelling commencements to have been reached in 2015/16, which will be followed by three consecutive years of decline. New dwelling commencements are forecast to bottom out at a level of around 166,500 in 2018/19, but there is downside risk to this forecast under current economic and political settings.

Unconventional Economist

Comments

  1. See undersupply in housing?

    See rising number of unemployed builders and construction workers.

  2. Grim news from the HIA

    With rental vacancy rates remaining very tight (i.e. way less than 3% – which is considered ‘in balance’ by real estate agents but is still tight for a healthy market) in most of our capital cities any reduction in construction is bad news.

    Unless of course Mr Dutton and Mr Morrison decide to cut down the high rate of ‘government approved’ immigration to match the fall in housing construction.

    But the odds of that happening are not good because everyone knows that rapidly rising house prices are the only way a nurse, policeman or teacher can hope to get ahead in this world.

    And nothing helps that process along than by engineering excessive demand for shelter while having the public balance sheet go effectively guarantor on hundreds of billions of dollars of cheap mortgage debt facilitated by unproductive capital inflows.

    Strap in for, at best, a new normal plateau.

    The only election promise this government is sure to keep will be the one about throwing the nation under the bus to defend the housing asset price ponzi scheme.

    • Grand Moff Tarkin

      Two things you can be absolutely guaranteed about in a housing bubble.

      The first one is that unemployment rises will always burst them – always.

      And the other thing is the massive tsunami of supply that comes onto the market as prices fall. Always the same

      Melbourne is facing the mother of unemployment spikes – according to many its already underway. Secondly – almost everyone I know has two, three, four investment properties – many of which are a beach house they rent out over summer for some cash to go over seas, a share property at the snow, and a flat tucked away in the city – and these people are all on average incomes.

      Not even kidding.

      I really do not think the level of multiple property ownership (sorry mortgages) is understood very well – people are stacking them up. Anyone who has one, has two or ore – and if they dont they are in the process of getting another one, or two. Almost all of them.

      The coastline from heads on one side of the bay – right around to the other side is filled to the brim with houses which are simply not even rented out permanently. Not even kidding on this.

      One of the other single biggest uses for houses and apartments is Air BnB – people are turning huge sums on these. I can rent out a house for $200 / night instead of $400 / week…..and it is happening everywhere.

      Now – a housing downturn is going to absolutely smash that into the middle of next century.

      Banking royal commission ? I would love to know how many investment mortgages are backed by Air BnB – more than a third I would say – easily.

      .

      • I’d add a third guaranteed thing. Immigration growth will decline dramatically as the jobs dry up.

      • Judging from the tumbleweeds rolling through most NSW coastal towns – the infestations of over capitalized holiday houses are not limited to Victoria.

        I am often amazed at the amount of cash people have poured into weekenders that they seem to rarely use.

        For me going to a different location / house every holiday and staying in someone else’s folly is great.

        As you note, the herd is likely to just cling on to their ill advised ‘investments’ until the market has turned and then try to sell all at the same time.

        Unfortunately, that still does not change the here and now where rental vacancy rates remain tight.

        The only way to really get the message through it to drive new construction until the speculators are gagging on cheap debt and have eaten all they can swallow and vacancy rates start with a 4 or a 5 as they do in Perth.

        Landlord desperate for tenants to pay the mortgage who cannot find a tenant at the price they want – will start to revise their expectations.

        And yes they will not go silently either.

      • @AB:

        NOM is already down about 40% compared to its peak – but it will certainly fall a great deal further when the construction work starts drying up ( handily synchronised with the end of auto manufacturing it looks like)

  3. If they’re all completed, 175k housing starts at current occupancy levels is still a fair bit more housing than is likely to be required without a big uptick in population growth, even allowing for some of them replacing existing housing.

    • Yes – but a large % are going to stay empty as “value vaults” for off shore speculators.

      Building shelter that stays empty with that “new car” smell is our national business model.

      Once you allow for the “value vaults” the new construction will struggle to keep up with the demand generated by our other business model – selling citizenship and residency for the price of a dodgy degree or Advanced Diploma in Canine Care.

      • Are you suggesting that maintaining a large construction workforce for the purpose of building houses that no one will ever live in is a sustainable enterprise, in the sense of we will be able to keep doing it forever?

        Can I interest you in buying a slightly used bridge currently crossing Port Jackson?

      • Robert,

        “…Are you suggesting that maintaining a large construction workforce for the purpose of building houses that no one will ever live in is a sustainable enterprise, in the sense of we will be able to keep doing it forever?..”

        Not at all.

        What I am talking about is ensuring there is a buffer stock of rental housing in the form of a slightly higher rental vacancy rate (say 4 – 5%)..

        This buffer stock will exert ongoing downward pressure on both rents and houses.

        Once the buffer stock vacancy rate is attained there will be no need to keep building as that will just drive the vacancy rate even higher. Not that anyone is likely to want to build when the vacancy rate is between 4 – 5%.

        What I am concerned about is the idea that we should be taking into account houses that are vacant but are not available for rent when there is no actual policies being proposed by ANY major party to increase the likelihood that they will be made available for rent.

        At the moment the vacancy rates in most capital cities are close to 2% and that is just far too tight. For 15 years I have heard people talking about an oversupply and impending crash but it just hasn’t happened. Filling a bit of excess supply is not a problem while there are millions of people eager to come and live in one of the richest countries on the planet.

        If people wish to have one or two holiday houses or a 1 bedroom flat in the city as a hipster bolt hole – that is a lot of housing stock that will never be available for rent and pretending that it might be or that it should be doesn’t really help those who are looking to rent or buy.

        The reality is that we are a rich country and lots of people have small families and two incomes and more than enough capacity to own and maintain multiple dwellings.

        As others have noted – there is an army of people who travel each weekend just to cut the lawn and trim the hedge on the weekender they have barely used since the kids reach the age of 13 and refused to go on a holiday to the same boring little town and beach.

        Rather than try to fight that – any more than we try to stop people having multiple cars per household – it is better than we accept the fact and build as much residential dwellings as people wish to own and are willing to pay for.

        That is not to say we shouldn’t have land taxes to encourage more efficient use of land but the reality is that people may be quite happy paying a modest land tax on their 2nd or 3rd house – and still keep them empty.

        Housing is nothing more than a consumption good and if people choose to consume multiple dwellings instead of overseas holidays, imported cars or other lifestyle options there is no point pretending otherwise.

      • RogerWilco,

        That is an obviously dumb thing to say.

        The HIA want lots of immigration so they can fill their output and maintain the demand for more. I don’t.

        What is about the rental vacancy rates across most of Australia and the immigration rates that you dont understand?

        Unless dwellings are available for rent they dont help all those people looking for affordable housing to rent or buy.

        This is not some temporary abberration either, Sydney’s rental vacancy rate has been tight since the late 1990s and vacancy rates of circa 2% are tight.

        Sticking your head in the sand and claiming that IF people were forced to make property available or IF immigration suddenly collapsed the situation would change is stating the obvious but guess what is likely to happen – the rate of construction may collapse even faster to ensure that if there is an oversupply it will be eradicated very quickly.

        The problem with so many crash enthusiasts is that they make the mistake of seeing collapsing ‘demand” in every sparrow fart and worse praying that it happens.

        If you want lower rents and house prices a bit of surplus housing beats a shortage of housing available for rent anyday.

        Funny how no one is calling for restrictions on car imports or car manufacturing, because studies show many households have cars that are barely used, when people are still buying cars. Guess what happens when importers import too many or manufacturers make too many cars that they cannot shift? The prices collapse regardless of the availability of cheap car finance.

        Haven’t you noticed that your allies, in demanding we stop building houses, are the speculators?

        There will be an oversupply of housing – but not if construction collapses faster than the demand from speculators and the population ponzi.

        If you want to stake the vampire make sure the stake is rammed right in and in the property market that means rental vacancy rates that start with at least a 4 or 5.

        If we cant get that with cuts to immigration then building more housing is the only real option.

  4. FWIW – the area in Alexandria/Zetland, Waterloo, and around, all commercial has been moved on and it is now apartments (5-6 levels) or appts to be habitable very soon. The streets will choke with traffic, already a problem, but there is no let up in the projects. The irony is the area down Sth Dowling is one project after another and it will look like crap in 5 years. Already due the mediocrity of the architects it resembles council housing zones outside French cities.

    And the IAB released its online ad market sizing.

    https://www.iabaustralia.com.au/news-and-updates/iab-press-releases/item/22-iab-press-releases/2161-online-advertising-spend-reaches-record-6-8-billion-in-2016-financial-year

    RE biggest growth category. It’s a metastasis alright.

    • TailorTrashMEMBER

      That area is truely a sight……..it used to be full of factories large and small providing jobs and a way for migrants to earn their way into Australian society and housing ………..now it’s wall to wall appartments for sale to migrants …….who will do exactly what in Australia ? ……..jobs and growth indeed ….

  5. No shortage of dog box, family unfriendly, land sterilising unit developments going ahead in the suburbs of Perth. 61 square meters of 2×1 with a single parking spot, anyone?

    “And his mother cried…”

    • And my understanding is that the price trends in Perth match the desirability of these properties quite well.

      • As they represent the cheapest available housing the prices for new units seems to be holding up remarkably well, however, you can knock 10 – 15% off reselling even if they’re only 6 months old. Not to mention the vacancy rate… I don’t think we’ve reached the point were developers are forced to significantly lower the sale price to maintain cash flow, but sooner or later we’ll get there.