Gloomy outlook for Australia home building

Construction faces a gloomy outlook in Australia for the rest of the year. 

Home building is back to global financial crisis lows, according to the Housing Industry Association's latest report. Declines occurred over the 12 months to March 2012 in every state and territory, which highlights the synchronised downturn in the construction industry.

The renovations sector is also slowing – there have been three consecutive quarters of decline, at an accelerating pace, in renovations investment through to March this year.

As a result, the HIA's forecast is looking grim. New housing starts in 2011/12 will fall for the seventh time in nine years, predicts the association. Housing starts dropped by 11.3 per cent in calendar year 2011. HIA is forecasting a further decline of 11.5 per cent in 2012. On a financial year basis housing starts are expected to have declined by 14.1 per cent in 2011/12 to a level of 135,284, following a decline of 5.7 per cent in 2010/11.

A modest recovery in housing starts is forecast to emerge over the 2012/13 financial year. Growth of 4.9 per cent, followed by a further increase of 4.4 per cent in 2013/14, would take starts to a level of 148,064. That is still an inadequate level of housing starts and a concerted program of reform across all levels of government is required to boost new housing supply.

The forecast recovery in housing starts primarily reflects growth in New South Wales and Queensland from woeful beginnings, and in Western Australia from a historically weak trough.

Renovations investment will have declined in 2011/12. HIA is expecting a fall of 1.5 per cent to $29.495 billion, largely driven by weakness in NSW and WA. However, renovations investment did reach a record high in 2010/11 (of $29.959 billion) and is likely to recover again in 2012/13.

Indeed, growth is forecast for both 2012/13 and 2013/14 with investment hitting $30.153 billion, which would be a fresh record. Over 2012/13 – 2013/14, renovations investment is forecast to post a net increase in NSW, Queensland, South Australia, WA, and the Northern Territory.

Cautious households, deleveraging, and a general increase in savings reflect a period of more conservative behaviour.

 "HIA has noted for a considerable time the risk that new housing again revisits levels experienced as a result of the GFC," commented HIA Chief Economist, Dr Harley Dale. "That situation now appears unavoidable, to the detriment of thousands of businesses and households, not to mention the overall domestic economy."

"We are experiencing a combination of softer housing demand and high-cost housing supply, which together mean that the nation is under-building by a significant amount. Put simply, Australian consumers are nervous about the global and domestic economies, and meanwhile around $200,000 of the price of a new home is due to taxation. It's an unsustainable situation," added Dale.

"To improve the conditions facing new home building not only requires further interest rate cuts, but also Commonwealth and state government action to boost confidence and lift a substantial portion of the tax burden from new housing," Harley Dale said.