New building activity will continue to soften this year and a recovery will emerge over 2007/08, according to the December 2006 quarter HIA National Outlook.
HIA’s chief economist Harley Dale said that the crisis in housing affordability would mean a lower level of residential activity in 2006/07.
“A stable interest rate environment in 2007 will create the platform for a gradual improvement in housing conditions as we move through the year.
“The onus is on all levels of government to fully utilise that steady rate platform and ensure the unsustainably high barriers to new home entry are reduced,” he added.
Dale said the gap between the cost of new housing and what medium and low income households can afford to pay is wider than ever.
He stressed that stable interest rates will not bridge that gap and only government action will.
“Spending on renovations, meanwhile, will hold at healthy levels as the retention of house price gains and the substitution from high cost new housing continues.
“Higher interest rates last year will see housing starts fall by a forecast 1% in 2006/07 following a 13% drop over the previous two years. That would see starts bottom at a level of 149,600,”
Dale said the risk is for a sharper decline, as New South Wales is yet to show a sustained recovery in building due to high land prices in Sydney and as the drought weighing down on regional building activity.
“Starts are forecast to grow by 3% in 2007/08 and by a further 6% in 2008/09, within which the stark differences evident across states in recent years will remain. Over 2007/08 starts are forecast to rise by 6% in NSW, from an extremely low base, but fall by 13% in Western Australia,” he added.
HIA’s Queensland executive director Warwick Temby said Queensland’s strong economic conditions should mean an improvement in the level of residential activity in 2006/07. However, the recovery will be tempered by the crisis in housing affordability.
“Following two weaker years where housing starts dropped by a total of 15%, starts are forecast to increase by 4% in 2006/07. That would see starts rise to a level of 38,900. The risk to this outlook is that higher interest rates in 2006 flow through to a largely flat year for new housing before a (delayed) recovery subsequently emerges in 2007/08.” Temby concluded.
Meanwhile, Dale said the renovations sector has out-performed in recent years and this situation will continue.
“From an all time record high level of expenditure of $27.7 billion in 2003/04, spending has only fallen by 3%. The market for renovations is more sensitive to interest rate rises than ever before and would have been knocked around by further hikes in 2007.
“However, with rates on hold, spending on renovations is also forecast to hold steady in 2006/07 before growing by 8% over 2007/08 – 2008/09 to a new record of $28.9 billion.” he concluded.
Australian Property Journal
