The Outlook for the Housing Industry in New South Wales

Transcription

1 The Outlook for the Housing Industry in New South Wales Dr. Harley Dale HIA Chief Economist HIA Industry Outlook Breakfast Sydney March 2011

2 Where are we heading? The economic backdrop is improving and... Policy update and focus... the performance of the labour market is a key positive. Housing Recovery? Renovations activity is on the up 2011 will see renewed new home weakness but is there a sustained improvement in sentiment underway?

3 % change Dec-89 Dec-90 Dec-91 Dec-92 Dec-93 Dec-94 Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 The Australian Economy hardly on fire and Gross Domestic Product Source: ABS Qtrly Annual The RBA is forecasting 4.25% growth in 2011 (we ended 2010 at 2.7%), so something has to give.

4 % change the same goes for NSW State Final Demand - New South Wales Source: ABS % 2.5% 3.0% 2.0% 2.0% 1.5% 1.0% 0.0% -1.0% -2.0% -3.0% 1.0% 0.5% 0.0% -0.5% -4.0% -1.0% Quarterly (lhs) Annual (rhs)

5 % Change NSW housing long the under-performer Change in the Number of Housing Starts Source: ABS 8752; HIA 40 HIA forecasts Australia NSW

6 Number Sep-84 Sep-85 Sep-86 Sep-87 Sep-88 Sep-89 Sep-90 Sep-91 Sep-92 Sep-93 Sep-94 Sep-95 Sep-96 Sep-97 Sep-98 Sep-99 Sep-00 Sep-01 Sep-02 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 NSW new housing has slipped massively Total Dwelling Starts Australia and NSW Source: ABS ,000 15,000 45,000 13,000 40,000 11,000 35,000 9,000 30,000 7,000 25,000 5,000 Australia (lhs) NSW (rhs)

7 $ million (moving annual total) Sep.1988 Sep.1990 Sep.1992 Sep.1994 Sep.1996 Sep.1998 Sep.2000 Sep.2002 Sep.2004 Sep.2006 Sep.2008 Sep.2010 NSW renos a long period of decline Renovations Investment in New South Wales - Moving Annual Total Source: ABS State Final Demand 12,000 11,000 10,000 9,000 8,000 7,000 6,000 5,000

8 That was then, this is now NSW ECONOMY INDICATOR UPDATE Gross State Product Improved Interest rate outlook Improved Manufacturing Deteriorated Unemployment rate Improved Detached houses Deteriorated Multi-units Improved Renovations investment Improved

9 Per cent Jun.1994 Jun.1995 Jun.1996 Jun.1997 Jun.1998 Jun.1999 Jun.2000 Jun.2001 Jun.2002 Jun.2003 Jun.2004 Jun.2005 Jun.2006 Jun.2007 Jun.2008 Jun.2009 Jun.2010 Jun.2011 Jun.2012 Jun.2013 Jun.2014 Jun.2015 NSW Economy a reasonable outlook Gross State Product - New South Wales Source: ABS ; Access Economics Long term average Forecast Year ended June This is a reasonable growth profile for NSW, but it needs housing to happen.

10 Jun-90 Jun-91 Jun-92 Jun-93 Jun-94 Jun-95 Jun-96 Jun-97 Jun-98 Jun-99 Jun-00 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 NSW population a positive outlook New South Wales Population Growth by Component - Moving Annual Total Source: ABS , , ,000 80,000 60,000 40,000 20, ,000-40,000-60,000 Total MAT Natural Increase MAT Net Overseas Migration MAT Net Interstate Migration MAT Population growth is still historically strong.

11 Per cent Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Unemployment rate is a great story for NSW Unemployment Rate in NSW Source: ABS Labour Force Year Average Unemployment Year Average Unemployment Rate 3.0 The unemployment rate is averaging its lowest in 2 ½ years. Full time employment growth is averaging 4% p.a.

12 Unemployment rate is a great story for NSW Unemployment Rate by State - January 2011 Source: ABS Labour Force National Unemployment Rate NSW VIC QLD SA WA TAS NT ACT NSW: consistently below the national rate over 7 consecutive months.

13 % Interest Rate May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Interest rates doing us a favour in 2011? Interest Rates, Australia Source: RBA Discounted Variable Mortgage Rate RBA Cash Rate The RBA lifted the cash rate by 25bps in Nov 10 and the major banks infamously went by more. Rates may be on hold for some time which is good news for our industry, but... the RBA s communication record in 2010 was the poorest for some years.

14 So where to for housing from here?

15 % change The latest update from forward indicators Housing Indicators - NSW Source: rpdata.com; ABS; HIA Economics Group 15.0% 12.0% 12.7% 10.0% 9.0% 5.0% 5.4% 2.0% 0.0% -0.1% 0.5% 0.0% -5.0% -24% -10.0% Land sales New home lending Investor lending Approvals New home sales Renovations investment Major alts and adds Detached house prices Multi-unit prices

16 Approvals could be better, but they could be worse NSW Monthly Dwelling Approvals Source: ABS Building Approvals Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Total Detached Houses Multi-Units Both detached house and other dwellings rose by over 5% in the Dec 10 quarter.

17 Dec-03 Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 First home buyers are still struggling, because... NSW First Home Buyers Source ABS Housing Finance % % % % % % % First home buyers - Dwellings financed (no.) Proportion

18 Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec affordability has dived, but... Housing Affordability in NSW Source: HIA Affordability Report Australia Sydney Rest of NSW

19 Number of loans... the trade-up buyer market has improved NSW First Home Buyer versus Non-First Home Buyer Loans Source: ABS Housing Finance 45,000 40,000 39,467 % change: +2% 40,103 35,000 30,000 25,000 20,000 15,000 10,000 5,000 11,947 % change -39% 7,231 0 FHB 3mths to Dec 09 3mths to Dec 10 Non-FHB

20 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 New home lending is trending higher and... NSW New Home Lending - Number of Loans Source: ABS Housing Finance 2,500 2,000 1,500 1, Total New Loans Construction of dwellings Purchase of new dwellings

21 Quarterly % change... out-growing the rest of the country New home lending - % change - December 2010 quarter Source: ABS % 11.9% 10.0% 5.0% 5.8% 8.1% 6.6% 8.7% 0.0% -1.1% -5.0% -10.0% -15.0% -12.5% Australia NSW VIC QLD SA WA Tas

22 So, what s going on? Remember the Raid ad?...kills flies dead. Some initiatives in the NSW mini budget last year actually made sense. The NSW labour market is performing well. Dwelling prices are recovering.

23 So, what s going on? Dwelling prices Over Sydney established house prices fell in 7 out of 12 quarters. Prices fell over five consecutive quarters from March 2008 to March Fairfield, Liverpool, Outer Western Sydney, Central Western Sydney, Blacktown all experienced double digit house price falls in the second half of last decade, while unemployment rates were rising in these markets. Many regional centres in NSW experienced price falls of 10 to 20 per cent. Some homes values are still lower now than they were in 2004.

24 So, what s going on? Dwelling prices Change in home values - December 2010 quarter Source: RP Data, Rismark International 3.0% 2.0% 1.5% 1.9% 1.0% 0.0% -1.0% -2.0% -3.0% 0.5% 0.4% 0.8% -0.8% -0.1% -0.1% -1.7% -1.6% -2.0% -1.2% -1.1% 0.3% 0.3% -4.0% -5.0% -4.1% Sydney Melbourne Brisbane Adelaide Perth Darwin Canberra Australian Capitals Houses Units

25 $ million (moving annual total) Sep.1988 Sep.1990 Sep.1992 Sep.1994 Sep.1996 Sep.1998 Sep.2000 Sep.2002 Sep.2004 Sep.2006 Sep.2008 Sep.2010 Renovations activity is on the rise Renovations Investment in New South Wales - Moving Annual Total Source: ABS State Final Demand 12,000 11,000 10,000 9,000 8,000 7,000 6,000 5,000

26 Dec-03 Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Major alts and adds finance is up 13% The NSW Renovations and Additions Market Monthly Lending and Monthly Council Approvals ($000) 300, , , , ,000 50,000 0 Lending for Alts and Adds Value of Council Approved Alts and Adds

27 So what does the short term future hold?

28 No of dwelling starts So it could be worse, but there is more short term pain Housing Starts Forecasts Source: HIA Economics Group Forecast /04 (a) 2004/05 (a) 2005/06 (a) 2006/07 (a) 2007/08 (a) 2008/09 (a) 2009/10 (a) 2010/ / /13

29 Why? Interest rates increased over 2009/10 and again in November last year. The tripling of the FHOG came to an end in December Interest rate conjecture in the first half of 2010 reached ridiculous heights. The NSW government continued to remind us of their Olympic gold ability at incompetence which further dented confidence in the housing industry. Long term structural problems remain...

30 Credit constraints as an example What impact do you think a lack of available finance is having on new home building? Source: HIA Economics Group Significantly restraining the level of new home building, 57% Substantially restraining the level of new home building, 31% No material impact, 12%

31 The credit crunch remains a real challenge for housing Credit conditions for small and medium sized residential developers have not eased, despite some rhetoric to the contrary. Small business loan rates are quite high. Moves to make the Mutual sector the fifth pillar are a step in the right direction, but... there needs to be more backing for the Residential Mortgage Backed Securities (RMBS) market with recent announcements barely touching the sides.

32 ('000) NSW has a dire shortage of housing Underlying Requirement for Housing vs Dwelling Completions - NSW Source: ABS, HIA /09 (a) 2009/10 (a) 2010/ /12 Completions UR

33 So what needs to be done? Have you got a spare decade? A planning system that ensures certainty and consistency. An alternative, more equitable infrastructure funding model for residential development. Increase real land supply. Increase industry skills and training. Work towards a more equitable taxation framework for new housing.

34 The outlook for renovations is reasonable HOUSING RENOVATIONS FORECAST: by state and territory Value of investment, $ million, Chain Volume Measure NSW Vic Qld SA WA Tas NT ACT Aust 2003/04 (a) 11,135 7,296 7,432 2,237 3, , /05 (a) 10,932 7,009 7,810 2,259 3, , /06 (a) 10,094 6,537 8,244 2,231 3, , /07 (a) 8,534 6,238 8,266 2,220 3, , /08 (a) 8,479 6,768 7,938 1,900 4, , /09 (a) 8,111 6,668 7,455 2,077 4, , /10 (a) 8,432 6,455 7,875 2,101 4, , /11 8,686 6,548 7,537 1,985 4, , /12 8,799 6,450 7,763 2,098 4, ,345 % change 2004/ / / / / / / / (a) = actual Updated December 2010

35 HIA Economics 2011 research agenda Federal Government Taxation Summit and wider tax issues Underlying requirement for housing by state and regional area Housing affordability, with a focus on First home buyer New home costs (particularly land) Rental markets Population and skilled migration Trends in investor activity Labour skills

36 Thank You for your time this morning Harley Dale Chief Economist HOUSING INDUSTRY ASSOCIATION