Economic and housing outlook for New South Wales Warwick Temby, Acting Chief Economist HIA Industry Outlook Breakfast Sydney, August 2017
Risks to residential building moving from global to local
World Economic Growth Outlook Source: IMF World Economic Outlook April 2017 India China ASEAN-5 Emerging market and developing economies World Australia Advanced economies Euro area United States Japan 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 2018 (forecast) 2017 (forecast) 2016 (estimate) Annual growth in GDP
Australian economy is OK? GDP grew surprisingly quickly during the first quarter of 2016; Inflationary pressures are still very muted; Labour market conditions are ok; Interest rates are likely to be lower for longer; Business investment green shoots But wages growth is low and household debt is high
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 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 $ million $ million Business investment is the laggard Business Investment in Australia 25,000 22,500 20,000 17,500 15,000 12,500 10,000 7,500 5,000 2,500 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 0 source: ABS P&E (LHS) Non-res building (LHS) Engineering (RHS)
Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Australian Dollar Exchange Rate Source: RBA 120.00 110.00 100.00 90.00 80.00 70.00 60.00 50.00 AUD vc USD Australian Dollar Trade-weighted Index
Aug-07 Aug-08 Aug-09 Aug-10 Aug-11 Aug-12 Aug-13 Aug-14 Aug-15 Aug-16 Aug-17 Index But consumers are confused Consumer Confidence Source: Westpac-Melbourne Institute 125 120 115 110 105 100 95 90 85 80 75
NSW VIC QLD SA WA TAS NT ACT' Total hours worked in all jobs Total hours worked in all jobs - Jun Qtr 2017 v Jun Qtr 2016 Source: HIA Economics, ABS 6202.0 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 1.3% 4.8% 1.3% 3.3% 2.0% 3.9% 0.1% -1.0% -2.0% -1.2%
Labour market a plus Unemployment Rate by State - July 2017 Source: ABS Labour Force 6.5 6.1 6.2 6.2 6.3 National Unemployment Rate 6.0 5.5 5.4 5.0 5.0 4.8 4.5 4.0 3.5 3.0 NSW VIC QLD SA WA TAS NT ACT 3.2
Jun-2007 Jun-2008 Jun-2009 Jun-2010 Jun-2011 Jun-2012 Jun-2013 Jun-2014 Jun-2015 Jun-2016 Jun-2017 Employment growing Annual employment growth in the NSW Source: HIA Economics, ABS 6202.0 4000.0 3800.0 3600.0 3400.0 3200.0 3000.0 2800.0 2600.0 2400.0 2200.0 2000.0 Employed total Employed full-time
1995/96 1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 Per cent Is the NSW economy on the mend? Gross State Product - New South Wales Source: ABS 5220.0; Access Economics 6.0 5.0 4.0 Long term average Forecast 3.0 2.0 1.0 0.0 Year ended June
Annual increase in population('000) Population Growth - Australian states Source: ABS 3101.0, HIA Economics 160 140 120 100 80 60 40 20 0 NSW VIC QLD SA WA TAS NT ACT Decade average Dec-2014 Dec-2015 Dec-2016
0.2% 0.6% 1.5% 1.4% 1.5% 0.9% 0.9% 1.5% 2.2% Where is everyone going? Population Growth in 2016 Source: HIA Economics, ACI 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% -1.0% -1.5% AUS NSW VIC QLD SA WA TAS NT ACT Natural Increase Net Overseas Migration Net Interstate Migration Annual rate of population growth
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 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Population still a driver New South Wales Population Growth by Component - Moving Annual Total Source: ABS 3101.0 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0-20,000-40,000-60,000 Total MAT Natural Increase MAT Net Overseas Migration MAT Net Interstate Migration MAT
NSW leads on housing indicators Indicator Scores - National Summary NSW VIC QLD SA WA TAS NT ACT Alterations and Additions - Value of Work Approved ($ millions) 7 8 6 3 2 1 4 5 Alterations and Additions - Total Private Expenditure ($ millions) 7 8 4 6 3 2 1 5 Housing Finance - Loans to Non-First Home Buyers (no.) 7 6 3 4 2 5 1 8 Housing Finance - Loans to First Home Buyers (no.) 1 5 8 3 6 4 2 7 New Home Approvals - Detached Dwellings (no.) 8 7 6 5 3 2 4 1 New Home Approvals - Multi-unit Dwellings (no.) 8 6 3 4 2 7 1 5 New Home Commencements - Detached Dwellings (no.) 8 7 6 4 2 3 5 1 New Home Commencements - Multi-unit Dwellings (no.) 8 7 3 2 6 4 1 5 New Homes Under Construction - Detached Dwellings (no.) 8 7 5 4 1 2 3 6 New Homes Under Construction - Multi-unit Dwellings (no.) 8 5 7 4 3 2 1 6 Established House Transfers (no.) 7 5 3 6 2 8 1 4 Attached Dwelling Transfers (no.) 3 5 6 4 2 7 1 8 Construction Workforce - Workforce Size ('000) 7 4 2 5 3 8 6 1 Construction Workforce - Total Hours Worked ('000) 7 5 3 4 1 8 6 2 State Score 94 85 65 58 38 63 37 64 Source: HIA Economics Scale 1 2 3 4 5 6 7 8 Weakest state Strongest state
Mar-1988 Mar-1989 Mar-1990 Mar-1991 Mar-1992 Mar-1993 Mar-1994 Mar-1995 Mar-1996 Mar-1997 Mar-1998 Mar-1999 Mar-2000 Mar-2001 Mar-2002 Mar-2003 Mar-2004 Mar-2005 Mar-2006 Mar-2007 Mar-2008 Mar-2009 Mar-2010 Mar-2011 Mar-2012 Mar-2013 Mar-2014 Mar-2015 Mar-2016 Mar-2017 Moving Annual Total Where are we at with new home building? Dwelling Commencements and Long Term Trends - NSW Source: HIA Economics, ABS 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 - Detached dwellings (MAT) Other dwellings (MAT)
Jul-00 Jul-01 Jul-02 Jul-03 Jul-04 Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Annual % change Will they or won t they? Annual growth in House Values - Sydney and Regional NSW Source: CoreLogic Hedonic Daily Home Value Index 30% 25% 20% 15% 10% 5% 0% -5% -10% Sydney Houses Regional NSW houses
Price forecasts - apartments Source: Sydney Morning Herald and Domain
Price forecasts - houses Source: Sydney Morning Herald and Domain
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 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 % change in index Supply or incomes curbing rents? CPI Rental Growth Sydney Source: ABS 6401 3.0 2.5 9.0 8.0 7.0 2.0 1.5 1.0 0.5 6.0 5.0 4.0 3.0 2.0 1.0 0.0 0.0 Qtrly (LHS) Annual (RHS)
May-08 Nov-08 May-09 Nov-09 May-10 Nov-10 May-11 Nov-11 May-12 Nov-12 May-13 Nov-13 May-14 Nov-14 May-15 Nov-15 May-16 Nov-16 May-17 Value $m (moving annual total) Investment in rentals rebounds Lending for Rental Properties - New South Wales Source: ABS Lending Finance 73,000 8,000 63,000 53,000 43,000 33,000 23,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 13,000 0 Existing (lhs) Construction (rhs)
FIRB Approvals for Residential Investment
FIRB Approvals- 2015-16 (4b) WA 3.65 VIC 28.06 TAS 0.04 SA 0.96 QLD 16.9 NT 0 NSW 20.65 ACT 0.17 0 5 10 15 20 25 30
FIRB Real Estate Approvals by Country 2015-16 ($b) Germany 1.4 Malaysia 1.4 UK 1.6 Korea 1.7 South Africa 2.2 Japan 2.5 Hong Kong 2.8 Canada 3.2 UAE 3.6 Singapore 4.6 USA 8.2 China 31.9 0 5 10 15 20 25 30 35
Foreign Investment
Stamp Duty
May-2007 May-2008 May-2009 May-2010 May-2011 May-2012 May-2013 May-2014 May-2015 May-2016 May-2017 Broader real estate market inching forward Owner occupier housing finance in the NSW Source: HIA Economics, ABS 5609.0 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 450 400 350 300 250 200 150 100 Loans for the purchase of established dwellings ex-refinancing (MAT) Average loan size ($'000) (RHS)
Jun-2007 Jun-2008 Jun-2009 Jun-2010 Jun-2011 Jun-2012 Jun-2013 Jun-2014 Jun-2015 Jun-2016 Jun-2017 Lending for contract built homes Loans for the construction of new dwellings in the NSW Source: HIA Economics, ABS 5609.0 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 450 400 350 300 250 200 150 100 Loans for the construction of dwellings (MAT) Average loan size ($'000) (RHS)
Jun-2007 Jun-2008 Jun-2009 Jun-2010 Jun-2011 Jun-2012 Jun-2013 Jun-2014 Jun-2015 Jun-2016 Jun-2017 Loans for completed and off-the-plan homes Loans for the purchase of new dwellings in the NSW Source: HIA Economics, ABS 5609.0 12,000 10,000 8,000 6,000 4,000 2,000 0 450 400 350 300 250 200 150 100 Loans for the purchase of new dwellings (MAT) Average loan size ($'000) (RHS)
Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Can first home buyers lead the way? NSW First Home Buyers Source ABS Housing Finance 4500 4000 3500 3000 2500 2000 1500 1000 500 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0 0.0% First home buyers - Dwellings financed (no.) Proportion
Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Lots of work to complete Snapshot of the Building Activity Pipeline - Flats, units and apartments Source: HIA Economics, ABS 8752.0, ABS 8731.0 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 - Commenced Completed
Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 NSW pipeline Snapshot of the Building Activity Pipeline - NSW Source: HIA Economics, ABS 8752.0, ABS 8731.0 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 - Houses Not yet commenced Flats units or apartments Not yet commenced
Thousand dwellings commenced Where to from here? NSW Housing Starts Forecasts Source: HIA Economics 50.0 45.0 40.0 41.7 45.8 Forecast 39.4 35.0 30.0 25.0 20.0 15.0 10.0 13.5 10.5 17.7 16.8 16.116.3 15.615.3 18.5 23.2 25.1 21.8 25.2 32.3 27.1 28.9 23.6 21.8 29.8 5.0 0.0 2008/09 (a) 2009/10 (a) 2010/11 (a) 2011/12 (a) 2012/13 (a) 2013/14 (a) 2014/15 (a) 2015/16 (a) 2016/17 (est) 2017/18 2018/19 Detached Multi
2007 (a) 2008 (a) 2009 (a) 2010 (a) 2011 (a) 2012 (a) 2013 (a) 2014 (a) 2015 (a) 2016 (a) 2017 2018 2019 2020 2021 No. of commencements New South Wales House vs 'Other' Dwelling Commencements - by State Source: ABS 8752, HIA 50.00 45.00 40.00 35.00 30.00 25.00 20.00 15.00 10.00 5.00 0.00 Detached - NSW Multi - NSW
Mar-2000 Mar-2001 Mar-2002 Mar-2003 Mar-2004 Mar-2005 Mar-2006 Mar-2007 Mar-2008 Mar-2009 Mar-2010 Mar-2011 Mar-2012 Mar-2013 Mar-2014 Mar-2015 Mar-2016 Mar-2017 $ million (moving annual total) Renovations spending is improving Renovations Investment in New South Wales - Moving Annual Total Source: ABS State Final Demand 13,000 12,000 11,000 10,000 9,000 8,000 7,000 6,000
May-07 May-08 May-09 May-10 May-11 May-12 May-13 May-14 May-15 May-16 May-17 $ Millions (MAT) What about major renovations NSW Alterations and Additions Approvals and Lending - Moving Annual Total 2,800 2,600 2,400 2,200 2,000 1,800 1,600 1,400 1,200 1,000 Lending for Alts and Adds Value of Council Approved Alts and Adds
Value of Investment (millions) The renovations outlook NSW Renovations Forecasts Source: HIA Economics 12,000 10,307 10,188 9,887 10,000 10,586 10,214 8,882 8,550 9,024 9,526 10,182 Forecast 9,878 10,038 10,162 8,000 6,000 4,000 2,000-2007 (a) 2008 (a) 2009 (a) 2010 (a) 2011 (a) 2012 (a) 2013 (a) 2014 (a) 2015 (a) 2016 (a) 2017 2018 2019
There will always be risks Constraints on lending APRA, Basel 4 Mortgage insurers Chinese regulations Attacks on foreign investment State Government Stamp duty and land tax Federal Government Application fees Visa changes Vacant property tax Land supply
Summing up It s a relatively natural cycle that s underway Detached and multi-unit housing will have different trajectories Renovations are coming over the hill Governments need to stop fiddling
It s complicated
THANK YOU FOR YOUR TIME Warwick Temby, HIA Acting Chief Economist http://economics.hia.com.au