Dwelling commencements outlook for 2007.
New South Walescommencements are expected to fall by 3% in 2006/07 to just 31,000 dwellings, which would be the lowest number since 1982/83, based on BIS Shrapnel estimates. This would mark the fourth consecutive year of the extended slump in dwelling construction.
Dwelling commencements are expected to show a 9% decline in Victoriain 2006/07, following the 4% decrease in 2005/06. Anderson forecasts higher interest rates will extend the downturn in investor demand for new apartments, although the relatively more affordable average price for residential land should be supportive of demand for detached houses.
Queenslanddwelling commencements are forecast to drop 3% in 2006/07. A rebound is warranted, as there is a substantial deficiency of new dwellings in south-east Queensland, but BIS Shrapnel believes higher interest rates will keep the affordability barrier high and thereby constrain demand.
Activity has been steady in South Australia over the past three years, defying the national downturn. South Australia has benefited from the boom in net overseas migration, as its share of the population gain has risen to 6%, compared to 3% just three years ago. A more affordable housing market has attracted a greater number of overseas migrants, supporting dwelling construction at a high level by historical standards. BIS Shrapnel forecasts dwelling commencements to decline by 9% in 2006/07, as higher interest rates lead to softer demand from investors.
A strong 12% upturn in dwelling starts in Western Australia in 2005/06 contrasted with the enduring decline in the eastern states. However, Anderson has forecast a 4% decrease for 2006/07. Affordability has deteriorated rapidly in 2005/06 and is now worse than any other capital city with the exception of Sydney. In particular, a cumulative 40% rise in building costs over the past three years has damaged affordability of new dwellings. In this context, BIS Shrapnel forecasts dwelling commencements in Western Australia to decline by 4% in 2006/07.
Tasmania’s affordability advantage diminished in 2004/05 and dwelling commencements fell by 9% in 2005/06. With interest rates rising, BIS Shrapnel forecasts a further 6% drop in 2006/07.
The Northern Territory is currently experiencing a solid upswing in residential markets, with strong growth in residential property prices. However, higher interest rates are expected to dampen demand, given the importance of investor financed activity to the current cycle in the Northern Territory. BIS Shrapnel forecasts an 8% decline in starts in 2006/07.
Commencements in the Australian Capital Territory plunged by 25% in 2005/06. Anderson believes this drop is due to softening investor demand for new apartments, in an environment of weaker property price growth and higher interest rates. BIS Shrapnel forecasts a further 5% decline in dwelling commencements in 2006/07.
Source: BIS Shrapnel*
