The Outlook for the Australian Residential Sector Presentation to Buildex

Transcription

1 The Outlook for the Australian Residential Sector Presentation to Buildex Andrew Harvey HIA Senior Economist October 2010

2 Presentation Outline The economic backdrop global economy domestic economic outlook New home building current activity and outlook Renovations current activity and outlook

3 The Economic Backdrop

4 The Economic Backdrop global outlook After contracting in 2009 for the first time in the post-war era, the global economy is growing again but performance is patchy: Emerging markets (particularly Asia) are experiencing a robust recovery Advanced economies are sluggish IMF forecasts the world to grow by 4.8% in 2010 and 4.2% in 2011 Major downside risks linger including the European debt crisis and continuing uncertainty over whether the US recovery will gain traction

5 % change Jun-89 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 The Economic Backdrop Australian growth Gross Domestic Product Source: ABS QoQ YoY Latest Treasury (PEFO) forecasts are for growth of 3% in 2010/11 strengthening to 3.75% in 2011/12

6 The Economic Backdrop - June quarter GDP was strong Contribution to Economic Growth - June 10 Qtr Source: ABS 5206 Other priv. inv 0.1 Govt. inv. 0 H/hold cons. 0.9 Inventories -0.7 Alts and adds -0.1 Govt. cons. 0.3 Exports 1.1 New housing 0.3 Non-res const. 0.1 Imports -0.7 P&E inv Ppt. contribution

7 Per cent 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 Annual % change The Economic Backdrop the labour market Australia's Labour Market Source: ABS Labour Force Labour market performing well with unemployment at 5.1% U/e rate (LHS) Employment Growth - trend (rhs) Evidence of hiring difficulty in a few sectors, including some housing trades. If labour market trend continues we will hit hiring problems down the track. National unemployment rate was 5.1% in September 2010.

8 State unemployment rates Unemployment Rate by State - August 2010 Source: ABS Labour Force National Unemployment Rate NSW VIC QLD SA WA TAS NT ACT

9 % Interest Rate Feb-08 Apr-08 Jun-08 Aug-08 Oct-08 Dec-08 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10 Aug-10 Oct-10 The Economic Backdrop interest rates Interest Rates, Australia Source: RBA The RBA last lifted the cash rate by 25bps in May 2010 (sixth hike in process). RBA has paused since, which has helped confidence But expectations are that rates will rise sooner rather than later. Discounted Variable Mortgage Rate RBA Cash Rate

10 Index Consumer confidence buoyed by rates and employment Consumer Confidence Source: Westpac-Melbourne Institute Sep-92 Sep-95 Sep-98 Sep-01 Sep-04 Sep-07 Sep-10 Boosted by: RBA holding rates; strong June quarter GDP number; firming labour market

11 Relative Performance of States & Territories Economic Rankings July 2010 Source: CommSec, ABS Western Australia 25 Australian Capital Territory 27 South Australia Northern Territory Victoria 37 Tasmania 44 Queensland New South Wales

12 Risks to the Economic Outlook Global uncertainty weighs heavily some poor US data, but also occasional good signs Private sector still slow to replace public sector as growth driver consumption strong in June quarter, but private business investment again detracted from growth The hope is that rates stay on hold a hike could be very detrimental to both confidence and the housing market

13 New Housing

14 New Housing: Background Stimulatory monetary and fiscal policy settings in 2009 have helped new home starts recover from their longest trend decline in post-war history with activity now showing up in work done. HIA s Housing 100 shows starts by largest builders were up 23 per cent in Across Australia starts were up 26 per cent in (at more than 165,000) But going forward, starts will be inhibited by credit, supply-side obstacles, and the lagged effect of tighter monetary policy. HIA s most recent Outlook (released 6 October) downgrades an already modest outlook for new home building in CY2011 and FY2011/12.

15 $ million Jun-76 Jun-78 Jun-80 Jun-82 Jun-84 Jun-86 Jun-88 Jun-90 Jun-92 Jun-94 Jun-96 Jun-98 Jun-00 Jun-02 Jun-04 Jun-06 Jun-08 Jun-10 First stage recovery is now showing up in activity Total New Residential Building Work Done Source: ABS Seas. Adj Trend

16 Number of loans driven mainly by first home buyers First Home Buyer versus Non-First Home Buyer Loans Source: ABS Housing Finance 160, , , , ,309 % change: -16% 123,704 80,000 60,000 40,000 20,000 54,389 % change: -56% 23,774 0 FHB Non-FHB 3mths to July 09 3mths to July 10

17 Aug-07 Oct-07 Dec-07 Feb-08 Apr-08 Jun-08 Aug-08 Oct-08 Dec-08 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10 Aug-10 and sales of new homes surged in early Private New House Sales - Australia Seasonally Adjusted % Source: ABS and HIA HIA New Home Sales ABS Seasonally Adjusted Approvals - Private Sector

18 and building approvals grew strongly in 2009/10 Change in Building Approvals to July 2010 Source: ABS Building Approvals 45.0% 40.0% 39.7% 39.9% 35.0% 30.0% 25.0% 26.3% 26.7% 24.7% 30.1% 20.0% 15.0% 10.0% 16.2% 11.4% 8.9% 5.0% 0.0% -5.0% NSW VIC QLD SA WA TAS NT ACT Aust. Annual % change

19 Jul-04 Oct-04 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 but new housing finance trend is unimpressive AUST New Home Lending - Number of Loans Source: ABS Housing Finance; HIA 12,000 10,000 8,000 6,000 4,000 2,000 0 Total New Loans Construction of dwellings Purchase of new dwellings

20 Quarterly % change with owner occupier new home lending going backwards New home lending - 3 months to July '10 Source: ABS % -2% -2% -2% -4% -6% -8% -10% -9% -8% -7% -12% -11% -14% -16% -18% -20% *3mths to June for ACT -17% -19% NSW Vic Qld SA WA Tas ACT* Australia 3 mths to July '10

21 and approvals now trending down again Australia - Monthly Dwelling Approvals Source: ABS Building Approvals 19,500 17,500 15,500 13,500 11,500 9,500 7,500 5,500 3,500 1,500 Aug-03 Feb-04 Aug-04 Feb-05 Aug-05 Feb-06 Aug-06 Feb-07 Aug-07 Feb-08 Aug-08 Feb-09 Aug-09 Feb-10 Aug-10 Total Detached Houses Multi-Units

22 $ Mar-2002 Jun-2002 Sep-2002 Dec-2002 Mar-2003 Jun-2003 Sep-2003 Dec-2003 Mar-2004 Jun-2004 Sep-2004 Dec-2004 Mar-2005 Jun-2005 Sep-2005 Dec-2005 Mar-2006 Jun-2006 Sep-2006 Dec-2006 Mar-2007 Jun-2007 Sep-2007 Dec-2007 Mar-2008 Jun-2008 Sep-2008 Dec-2008 Mar-2009 Jun-2009 Sep-2009 Dec-2009 Mar-2010 as residential land sales also drop off Residential Land - Australia Source: HIA Economics, RP Data 200, , , , , , ,000 0 No. of sales Value Volume of sales in the March 2010 quarter and was down 40% compared to the first quarter of 2009 Weighted median land value for Australia was effectively unchanged in the March 2010 quarter at $184,574

23 No. of commencements Dec-1989 Dec-1990 Dec-1991 Dec-1992 Dec-1993 Dec-1994 Dec-1995 Dec-1996 Dec-1997 Dec-1998 Dec-1999 Dec-2000 Dec-2001 Dec-2002 Dec-2003 Dec-2004 Dec-2005 Dec-2006 Dec-2007 Dec-2008 Dec-2009 Dec-2010 Dec-2011 Dec-2012 meaning a subdued outlook for new starts Total Dwelling Commencements - Australia Source: ABS 8750, HIA 50,000 HIA Forecast 45,000 40,000 35,000 30,000 25,000

24 Housing starts: Forecasts HOUSING STARTS: by state and territory thousand dwellings commenced Starts NSW Vic Qld SA WA Tas NT ACT Aust 2003/04 (a) /05 (a) /06 (a) /07 (a) /08 (a) /09 (a) / / / % change: 2004/05 (a) /06 (a) /07 (a) /08 (a) /09 (a) / / / Updated October 2010

25 The Renovations Market

26 Annual % growth House price growth has helped underpin renos Capital Growth in Australian Cities in 2009 Source: RP Data/Rismark National Capital Cities Hedonic Index Darwin Melbourne Canberra Sydney Australia Brisbane Perth Adelaide

27 $ million (moving annual total) Jun-1987 Jun-1988 Jun-1989 Jun-1990 Jun-1991 Jun-1992 Jun-1993 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 with relatively strong investment in renos Renovations Investment in Australia Source: ABS ,000 32,000 30,000 28,000 26,000 24,000 22,000 20,000 18,000 16,000 14,000

28 but the home price cycle has turned Change in home values - 3 months to August 2010 Source: RP Data, Rismark International 4.0% 2.0% 1.7% 2.3% 0.0% -2.0% -4.0% -0.5% -2.0% 0.2% 0.4% 0.3% -2.8% -0.2% -4.1% -0.9% -2.5% -1.6% -1.6% -0.2% -6.0% -8.0% -7.3% Sydney Melbourne Brisbane Adelaide Perth Darwin Canberra Australian Capitals Houses Units

29 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...and past rate hikes are hitting hit reno lending Australia: Lending for Renovations and Interest Rates Source: ABS Housing Finance; RBA; HIA ,400, ,200, ,000,000 5,800,000 5,600,000 5,400, ,200, ,000,000 RBA Cash Rate Lending for renovations (moving annual total)

30 Jul-04 Sep-04 Nov-04 Jan-05 Mar-05 May-05 Jul-05 Sep-05 Nov-05 Jan-06 Mar-06 May-06 Jul-06 Sep-06 Nov-06 Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 although reno approvals are holding up okay Australia: Council approvals for renovations Source: ABS Building Approvals ,000, ,500,000 6,000, ,500,000 5,000, ,500,000 4,000, ,500,000 3,000,000 Value of Alts and Adds Approved Moving annual total

31 meaning a modest outlook for renovations 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) 10,497 7,032 6,884 2,077 3, , /05 (a) 10,305 6,757 7,235 2,098 3, , /06 (a) 9,515 6,302 7,638 2,071 3, , /07 (a) 8,967 6,702 8,531 2,298 3, , /08 (a) 8,886 7,253 8,173 1,960 4, , /09 (a) 8,485 7,131 7,663 2,139 4, , /10 8,951 7,126 7,984 2,163 5, , /11 9,130 7,269 7,824 2,185 5, , /12 9,313 7,196 8,059 2,163 5, ,597 % change 2004/ / / / / / / / (a) = actual

32 Housing Market Fundamentals

33 Mar-90 Mar-91 Mar-92 Mar-93 Mar-94 Mar-95 Mar-96 Mar-97 Mar-98 Mar-99 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Australia s population growth Australia's Population Growth by Component - Moving Annual Total Source: ABS Total MAT Natural Increase MAT Net Overseas Migration MAT

34 ('000) We are not building enough new homes Underlying Requirement for Housing vs Dwelling Completions - Australia Source: ABS, HIA (a) 2009 (a) Completions UR

35 US v Australia history

36 Housing shortages Housing Shortage 2009 Rank LGA 2009 Housing Shortage 1 Brisbane (C) Sydney (C) Bankstown (C) Beaudesert (S) Canterbury (C) Melbourne (C) Wanneroo (C) Ipswich (C) Blacktown (C) Auburn (A) Camden (A) Rockingham (C) Rockdale (C) Port Phillip (C) Caboolture (S) Ryde (C) Logan (C) Wyong (A) Tweed (A) Maroochy (S) -1304

37 Supply-side constraints There is a range of supply side obstacles which stimulus measures temporarily masked. We need housing policy reform on a range of issues: Land supply Skills and training Taxes, including stamp duties Infrastructure funding and provision As well as tangible land supply, more accurate and transparent information is needed regarding the land supply chain.

38 Summary The world economy is recovering but major downside risks remain The Australian economy has weathered the global uncertainty relatively well The economy, and housing in particular, is adjusting to a world without stimulus in the system 2009/10 was a good year for residential building 2010/11 and 2011/12 are unlikely to be particularly buoyant in terms of residential building activity but Australia does have solid long term fundamentals for housing.

39 Additional slides..selected building trends in the jurisdictions

40 Number Mar-04 Mar-06 Mar-08 Mar-10 Housing starts in NSW, Victoria and Queensland Total Dwelling Starts NSW, Victoria and Queensland Source: ABS NSW Vic QLD

41 Trades in Short Supply Trade prices and availability Home Building Trade Prices and Availability - Australia Source: HIA-Austral Bricks Trade Report Availability Index Price Index Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun Trade Availability (LHS) Trade Prices (RHS

42 The rental market conditions are tight Capital City Vacancy Rates, August 2010 Source: SQM Research Vacancy rates are still at very tight levels Hobart Darwin 0.9% 1.3% and rental growth is beginning to pick up again. Canberra Perth Adelaide 0.6% 0.9% 1.4% Investor incentives, such as negative gearing arrangements, need to be retained and built upon. Brisbane 1.9% Melbourne 2.1% Sydney 1.3% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% Per cent

43 Victorian building approvals continue to power along Australia - Monthly Dwelling Approvals Source: ABS Building Approvals 19,500 17,500 15,500 13,500 11,500 9,500 7,500 5,500 3,500 1,500 Aug-03 Feb-04 Aug-04 Feb-05 Aug-05 Feb-06 Aug-06 Feb-07 Aug-07 Feb-08 Aug-08 Feb-09 Aug-09 Feb-10 Aug-10 Total Detached Houses Multi-Units

44 while South Australia is doing okayish SA Monthly Dwelling Approvals Source: ABS Building Approvals Aug-03 Feb-04 Aug-04 Feb-05 Aug-05 Feb-06 Aug-06 Feb-07 Aug-07 Feb-08 Aug-08 Feb-09 Aug-09 Feb-10 Aug-10 Total Detached Houses Multi-Units

45 New South Wales still has a long way to go NSW Monthly Dwelling Approvals Source: ABS Building Approvals Aug-03 Feb-04 Aug-04 Feb-05 Aug-05 Feb-06 Aug-06 Feb-07 Aug-07 Feb-08 Aug-08 Feb-09 Aug-09 Feb-10 Aug-10 Total Detached Houses Multi-Units

46 Western Australia is trending down WA Monthly Dwelling Approvals Source: ABS Building Approvals Aug-03 Feb-04 Aug-04 Feb-05 Aug-05 Feb-06 Aug-06 Feb-07 Aug-07 Feb-08 Aug-08 Feb-09 Aug-09 Feb-10 Aug-10 Total Detached Houses Multi-Units

47 and activity in Queensland is woeful QLD Monthly Dwelling Approvals Source: ABS Building Approvals 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, Aug-03 Feb-04 Aug-04 Feb-05 Aug-05 Feb-06 Aug-06 Feb-07 Aug-07 Feb-08 Aug-08 Feb-09 Aug-09 Feb-10 Aug-10 Total Detached houses Multi Units

48 $'000 Jul-03 Oct-03 Jan-04 Apr-04 Jul-04 Oct-04 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 but renovations are holding up well in most markets The QLD Renovations and Additions Market Monthly Lending and Monthly Council Approvals 160, , , ,000 80,000 60,000 40,000 20,000 0 Lending for Alts and Adds Value of Council Approved Alts and Adds

49 THANK YOU Andrew Harvey Senior Economist October