The Outlook for the Housing Industry in New South Wales

Transcription

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

2 It s (apparently) all about Europe

3 What s going on in Europe and what s is got to do with us? Europe is already back in recession. Think Australia circa 1990 but with unemployment already at 10% (or in Spain s case 22%). Europe is China s largest trading partner (25 30% of exports). China s net exports are at a more than two year low and manufacturing activity was falling sharply. Monetary policy (interest rates) is at its tightest for ten years, but the Chinese retail sector appears okay and fixed internal investment is still growing at over 20%. Remember, China takes 50% of the world s steel. There is ample room to move to stimulate domestic demand and there is a change in leadership later this year. The most likely outcome is that Europe muddles through and China is okay.

4 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 Dec-11 % change NSW Housing Outlook The Australian Economy too much focus on the aggregate Gross Domestic Product Source: ABS Qtrly Annual Economic growth is okay, but patchy and as HIA predicted from late 2010, nowhere near what was originally forecast.

5 HIA National Outlook, December 2010 (Official) economic growth rate forecasts for Australia in 2011 are too high... In terms of the resources boom mark II:- there may be little else to drive economic activity and we will need a quick reversal in monetary policy settings and potentially a revamping of some fiscal stimulus elements.

6 Interest rate relief appears to have been short-lived

7 % Interest Rate 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 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 *Feb -12 Mar-12 Interest rates are not going according to plan Interest Rates, Australia Source: RBA Discounted Variable Mortgage Rate RBA Cash Rate Small Business Variable Term Loan Interest rates fell in late 2011, but the banks dithered and businesses lost out. Banks lifting interest rates in 2012 changes the entire landscape.

8 Index NSW Housing Outlook Consumers are feeling slightly better but still nervous Consumer Confidence Source: Westpac-Melbourne Institute Feb-94 Feb-96 Feb-98 Feb-00 Feb-02 Feb-04 Feb-06 Feb-08 Feb-10 Feb-12

9 The NSW economy a mixed bag like everywhere else NSW ECONOMY INDICATOR Gross State Product Interest rate outlook Manufacturing Unemployment Detached houses Multi-units Renovations UPDATE Steady Steady/deteriorated Steady Steady Deteriorated Improved Deteriorated

10 % change Housing indicators up and down Housing Indicators - Latest update for NSW Source: ABS, rpdata.com, HIA Economics 10.0% 8.6% 5.8% 5.0% 0.9% 0.9% 0.0% -0.1% -5.0% -4% -4% -3.4% -3.0% -5.0% -10.0% -11.8% -15.0% Land sales (Sydney) Land prices (Sydney) New home lending Approvals - detached Approvals - 'total' New home sales Alts & adds Detached house prices (Sydney) Multi-unit prices (Sydney) Detached house prices (regional NSW) Multi-unit prices (regional NSW)

11 Per cent 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 Jan-12 Per cent The employment market is okay New South Wales' Labour Market Source: ABS Labour Force U/e rate (LHS) Annual Employment Growth Rate (RHS)

12 Unemployment rate in NSW is holding its own Unemployment Rate by State - January 2012 Source: ABS Labour Force National Unemployment Rate NSW VIC QLD SA WA TAS NT ACT

13 Housing is the key to a healthy NSW economy

14 New Home Building

15 Number Dec-89 Dec-91 Dec-93 Dec-95 Dec-97 Dec-99 Dec-01 Dec-03 Dec-05 Dec-07 Dec-09 Dec-11 NSW Approvals are heading in the wrong direction Building Approvals - NSW Source: ABS Building Approvals 7,000 6,000 5,000 4,000 3,000 2,000 1,000 Seasonally adjusted Trend

16 Source: HIA-Commonwealth Bank Affordability Report Housing Affordability is improving and HOUSING AFFORDABILITY INDEX, NSW HOUSING AFFORDABILITY INDEX, NSW D06 M07 J07 S07 D07 M08 J08 S08 D08 M09 J09 S09 D09 M10 J10 S10 D10 M11 J11 S11 D11 SYDNEY REST OF NSW

17 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 Mar-11 Jun-11 Sep-11 Dec-11 first home buyers are re-emerging and NSW First Home Buyers Source ABS Housing Finance % % % 25.0% 20.0% 15.0% % % First home buyers - Dwellings financed (no.) Proportion

18 Number of loans... the trade-up buyer market has improved NSW First Home Buyer versus Non-First Home Buyer Loans - NSW Source: ABS Housing Finance 40,000 35,000 33,060 % change: +7% 35,337 30,000 25,000 20,000 15,000 10,000 5,000 6,846 % change +64% 11,194 0 FHB 3mths to Dec 10 3mths to Dec 11 Non-FHB

19 How are the regions faring? Population growth Residential lot sales* NSW Building approvals** Ranking Sydney South Eastern Mid-North Coast Illawarra Hunter Central West = Richmond-Tweed Northern Murrumbidgee North Western Murray = *Annual % change - 6 mnths to Sep 2011 **Annual % change - December qtr 2011

20 Housing prices, new housing, and renovations activity

21 Guess what? No housing crash Change in home values - year on year, December 2011 Source: RP Data, Rismark International 2.0% 0.0% 0.9% -2.0% -4.0% -0.9% -3.6% -1.1% -4.3% -4.2% -2.2% -2.6% -2.5% -1.4% -1.5% -4.3% -6.0% -5.3% -8.0% -6.5% -6.8% -6.8% -10.0% Sydney Melbourne Brisbane Adelaide Perth Darwin Canberra Australian Capitals Houses Units

22 Dwelling prices NSW regional centres Change in dwelling values - Annual change, 12 months to December 2011 Source: Australian Property Investor, RP Data-Rismark 25.0% 20.0% 15.0% 15.7% 20.8% 10.0% 5.0% 2.0% 1.2% 5.7% 5.9% 2.1% 4.3% 0.0% -5.0% -10.0% -15.0% -2.2% -2.9% -4.7% -5.5% -8.4% -10.2% Albury Armidale Bathurst Broken Hill Coffs Harbour Dubbo Lismore Maitland Orange Queanbeyan Tamworth Wagga Wagga Wollongong Sydney 12 month % change

23 $ million (moving annual total) Dec.1989 Dec.1991 Dec.1993 Dec.1995 Dec.1997 Dec.1999 Dec.2001 Dec.2003 Dec.2005 Dec.2007 Dec.2009 Dec.2011 Renovations activity has re-disappointed and Renovations Investment in New South Wales - Moving Annual Total Source: ABS State Final Demand 11,000 10,000 9,000 8,000 7,000 6,000 5,000

24 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 Mar-11 Jun-11 Sep-11 Dec-11 major alts and adds haven t done much The NSW Renovations and Additions Market Monthly Lending and Monthly Council Approvals ($000) 250, , , ,000 50,000 0 Lending for Alts and Adds Value of Council Approved Alts and Adds

25 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) 9,741 6,424 6,358 1,934 3, , /05 (a) 9,592 6,191 6,702 1,958 3, , /06 (a) 8,962 5,842 7,159 1,956 3, , /07 (a) 8,284 6,095 7,845 2,130 3, , /08 (a) 8,262 6,639 7,565 1,829 4, , /09 (a) 7,957 6,583 7,152 2,011 3, , /10 (a) 8,263 6,338 7,363 2,026 4, , /11 (a) 8,265 6,381 6,836 1,914 4, , /12 8,004 6,495 7,349 1,956 4, , /13 8,238 6,423 7,333 1,979 4, ,084 Source HIA Economics December 2011 % change 2004/05 (a) -2% -4% 5% 1% 6% -3% 44% -11% 1% 2005/06 (a) -7% -6% 7% 0% 0% 4% 10% 6% -2% 2006/07 (a) -8% 4% 10% 9% 8% 2% -19% -7% 2% 2007/08 (a) 0% 9% -4% -14% 21% 8% -23% 12% 2% 2008/09 (a) -4% -1% -5% 10% -7% 3% 3% -18% -3% 2009/10 (a) 4% -4% 3% 1% 15% -5% 22% 30% 3% 2010/11 0% 1% -7% -6% 4% -2% 0% 11% -1% 2011/12-3% 2% 8% 2% -4% 8% -4% -1% 1% 2012/13 3% -1% 0% 1% 2% -2% 4% -2% 1% (a) = actual

26 The outlook and what needs to be done

27 Thousand dwellings commenced A recovery in new housing starts in 2012/13? NSW 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) 2010/11 (a) 2011/ /13

28 NSW has a dire shortage of housing New South Wales' Housing to Ranked by Shortage Ranking Projected Dwelling Completions Medium Local Government Area Demand Low Annual High Annual State National Annual Build Build Rate Build Rate Rate Shortage by 2020 (medium build rate) 1 11 Lake Macquarie (C) 11,618 6,797 9,788 11,703 5, Wollongong (C) 10,183 6,214 8,949 10,701 4, Sutherland Shire (A) 10,227 6,323 9,106 10,889 4, Blacktown (C) 18,078 11,078 15,953 19,075 4, Penrith (C) 9,321 5,763 8,300 9,924 4, Newcastle (C) 9,222 5,628 8,105 9,691 3, Liverpool (C) 9,759 6,087 8,766 10,482 3, Gosford (C) 8,180 5,467 7,873 9,414 3, Wyong (A) 8,311 5,138 7,400 8,848 3, Canterbury (C) 6,346 4,034 5,809 6,946 3,314

29 So, what can be done? In December 2010 HIA Economics was the first group in Australia to point out that interest rates might need to fall in 2011 and that everybody was too bullish on the economy. In February 2011 this message was conveyed in person to the PM s office and the need for assistance to residential building was conveyed. In March 2011 the same message was delivered to the Federal Treasurer s office and a set of polices was provided to Commonwealth Treasury. HIA continued to communicate, in person and at arms-length, with the Treasurer and with Commonwealth Treasury. HIA also held two meetings with the Australian Bankers Association with regard to the lack of available finance for residential development.

30 There needs to be a focus on taxation reform An independent report provides compelling evidence that:- New housing is one of the most heavily taxed sectors of the Australian economy. Among Australia s 27 largest industrial sectors (> $10billion), the residential building sector is the second most heavily taxed sector. Including direct, indirect, and hidden taxes the tax on new housing is estimated at 44 per cent of a new house in Sydney, 38 per cent in Melbourne, and 36 per cent in Brisbane. Model simulations show that most of the burden of taxation falls on home buyers. Many of the taxes on housing are economically inefficient, ranging in value from $45,300 on a new apartment in Melbourne to $141,500 on a new house in Sydney.

31 Total taxes on new houses and apartments New homes New apartments Sydney M elbourne Brisbane Sydney M elbourne Brisbane Direct Hidden/ambiguous Indirect Total Data source: TheCIE 2011.

32 Some wider findings The total taxes collected by governments for a new house is 44 per cent ($268,000) of the purchase price of a new home in Sydney. While Sydney houses yielded the highest figure, the other figures were also high. However, the tax burden of housing was found to be considerably higher in Sydney:- For houses the tax burden is 46 per cent higher in Sydney than in Melbourne; 40 per cent higher than in Brisbane. For apartments the tax burden is 33 per cent higher in Sydney than in Melbourne; 22 per cent higher than in Brisbane.

33 Thank you for your time this morning Harley Dale Chief Economist HOUSING INDUSTRY ASSOCIATION