This article is from the Australian Property Journal archive
The housing sector will continue to wind down in 2006, according to the March 2006 quarter of HIA National Outlook.
According to the report, house prices are relatively stable with new housing activity undergoing a reasonably moderate down cycle and spending on renovations is slightly off the boil.
HIA chief economist Harley Dale said the national slowdown in housing would continue to be moderate, but stark differences across states and territories would remain in play throughout the year.
“Within this aggregate situation, the differences across Australia are, and will remain, stark. At one extreme you have states with an abundance of resources – Western Australia, the Northern Territory, and North Queensland – where housing remains very strong.
“At the other extreme, you have NSW which is heavily weighed down by a severe housing affordability crisis in Sydney. The rest of Australia falls in between these two extremes and will experience softer housing activity this year compared to last,” Dale added.
HIA’s NSW executive director Wayne Gersbach said that the slowdown in housing would continue throughout 2006, dragged down in particular by the dire circumstances afflicting Sydney.
“House prices are relatively stable, but new housing activity is undergoing a down cycle to a far greater extent than anywhere else in Australia, and spending on renovations is well off the boil. This situation will persist throughout the year unless urgent action is taken to address the continuing affordability crisis afflicting all of NSW, but Sydney in particular.
“In 2005 new housing construction fell by over 16% and renovations expenditure dropped by 8%. Falls of this magnitude are unheard of elsewhere in the country because we have an environment of low interest rates and low unemployment.
“Sadly, because the crisis in affordability has got so hopelessly out of control in NSW, the premier state is far from living up to that title as it endures a savage housing downturn while all around it work through a relatively moderate housing correction.
“There is little hope on the horizon for the state’s new home builders and renovators and it is high time for a rescue package to be implemented to address the dire lack of demand for housing in the Sydney market in particular,” Gersbach said.
According to the report, housing starts fell by 24% over 2003/04 – 2004/05 and are forecast to drop by a further 14% this financial year.
“That will take starts to a level lower than that seen post the introduction of the GST. Starts are forecast to bounce back to a level of around 38,000 by 2007/08, but the level needs to be much higher to meet underlying demand.
“After falling by 3% in 2004/05, renovations expenditure is forecast to fall by a further 7% over this financial year and next, finding a base at a still reasonably healthy level of $8.3 billion. That level of spending would represent 52% of total housing investment,” Gersbach added.
“Against a backdrop of low and competitive interest rates, slightly softer but still very healthy labour market conditions, and largely stable house prices, we would expect to see a modest recovery begin to show through for housing over the course of 2006/07.
“The recovery will be somewhat muted, however, because housing affordability continues to be a major hurdle anywhere and everywhere across Australia.
“Until such time as governments address this issue, the next up-cycle in housing will be significantly constrained,” Dale added.
According to the report, having fallen by 9% in 2004/05, the number of housing starts is forecast to decline by a further 6% in 2005/06, bottoming at a level of 147,440.
The report forecasts starts will increase by 9% over 2006/07 – 2007/08 to 160,420, a level that will still be below underlying demand at that time.
“After easing by 1% in 2004/05, renovations expenditure is forecast to fall by 4% this financial year and by a further 2% in 2006/07, finding a base at a still very healthy level of $24.4 billion. That level of spending would represent 46% of total housing investment,” Dale concluded.
By Kathryn O’Meara
