QLD high & dry? – Matusik

THE Bureau of Meteorology recently posted an article on their website suggesting that the drought which has affected much of eastern Australia over the last couple of years is ending.

The current El Nino pattern has ended and whilst the conditions in the Pacific Ocean are neutral at present the chances of a La Nina system forming –which usually brings wetter conditions to the east coast of Australia –is increasing.

Last week’s falls across Victoria and New South Wales –and in some cases the best in years –adds support to the bureau’s claim.

Queensland, and in particular the north-west and south east corner of the state, however, remains (to date at least) in drought.

Last week 62% or 83 municipalities across Queensland were drought declared. Wivenhoe Dam is below 20%% capacity.

At present Queensland’s population is increasing by 1,500 people per week. South East Queensland is currently growing by 940 new residents each week. There were 37,870 new housing starts across Queensland last year. Australia saw 151,680 new dwelling commencements during calendar 2006.

Unless the drought breaks there are likely to be fewer dwellings built across the country in the next couple of years.

The new housing market is already undersupplied and this is likely to get worse unless it rains and rains a lot.

The chart below shows a strong relationship between drought and new dwelling starts, and whilst our economic dependence on the land is less than it was in the past it still has an impact on housing demand.

Unfortunately it may take some time for things to get back to normal. Even if rainfall returns the stock of water is not being replenished. Dam levels are likely to stay low, which points to another tough year for irrigated crops and those living off the land.

We anticipate fewer housing starts during 2007/08 and somewhere around 5% less than we saw over the last 12 months.

This will see 145,000 new starts across Australia which will exasperate the undersupply to around 12%.

The new market is currently undersupplied by about 7%. Queensland is likely to be 14%% undersupplied by year’s end. End prices and rents will continue to rise resulting in fewer migrants moving to Queensland.

By Michael Matusik, Director of Matusik Property Insights.*