Australia | Nov 24 2008
By Chris Shaw
Residential construction activity levels have been flat or falling since 2002 but this trend is set to end in 2009 according to industry analyst and economic forecasting group BIS Shrapnel. The group is predicting a 10% increase in the national number of dwelling starts next year, an increase of enough size to provide some support to the Australian economy.
In the group’s view, if the Federal Government was to extend its First Home Owner Boost Scheme until at least December 31 next year it would not only provide momentum for the construction of more detached housing, but such initiative would also help improve the funding outlook for apartment developments in the second half of 2009.
This would go some way to easing the current rental crisis, as the group’s senior economist Jason Anderson points out the market is likely to see a reduced number of affordable apartments available over the next six months given the difficulties developers face in getting finance for such projects.
In Anderson’s view, the current financial crisis means this situation is unlikely to be resolved in the next few months, so almost all of the boost provided by the Boost Scheme will be in the detached housing market unless it is extended for longer.
As well, Anderson points out by using more of the government’s budget surplus to extend the Boost Scheme there will be broader economic benefits as alternatives such as tax cuts could be saved rather than spent and this would not offer any help for general economic activity levels.
If the Boost Scheme was able to help alleviate the housing shortage by increasing development it would also help limit the growth in rents, which the group expects will follow a 2008 increase of 8% with a further 10% increase in 2009. Any easing of pressures in the rental market would be more likely to help lower income households according to Anderson.
Factoring in the Boost Scheme as it stands and using the 2001 increase in the First Home Buyers Grant as a guide, the group expects 2009 will see a pull forward in detached housing demand of as much as 11,000 dwellings next year. Anderson notes both monetary and fiscal policy are now supportive for the housing sector.
In terms of the state by state outlook, the group expects New South Wales housing starts will hit a 50-year low this year and while demand will increase in 2009, activity levels will remain low. This means the accommodation deficit will continue. The group sees this as a major reason why the NSW economy has performed so poorly relative to other states and it suggests the State Government needs to cut development levies to improve the financing conditions for developers. Without such a move, the state’s rental crisis is likely to continue for at least a further three years.
In contrast, dwelling construction in Victoria has held up reasonably well thanks to lower land values. The Boost Scheme should help here, particularly in regional areas where additional benefits are being offered to address declining demand over the past three years.
Falling affordability in Queensland saw first home buyer demand fall by 40% in the first nine months of this year, but the group predicts a solid recovery in 2009 as the Boost Scheme is being matched by cuts in stamp duty and falling interest rates. The group expects many renters will become buyers in the coming year, especially as rental growth is again expected to remain above 10% in 2009.
South Australia has delivered the most resilience in terms of first home buyer demand, as actual numbers of such loans for the year have declined only modestly and demand remains high compared to historical levels. As a result, the group expects the Boost Scheme to have only limited impact in the South Australian market.
More of a boost should be evident in Western Australia, as Anderson sees the scheme as delivering an improvement in owner-occupier demand for detached housing, especially given the forecast 11% increase in rents expected this year. However, he points out the magnitude of the boost offered by the Scheme will be limited by poor affordability levels.
The Northern Territory is also expected to see a solid response to the Boost Scheme given Darwin remains a very tight rental market. This is a similar outlook to that of the Australian Capital Territory where there has been an improvement in affordability thanks to increased land supply.
In Tasmania, both affordability and dwelling construction have held up well, thanks largely to relatively low land prices. As a result, the Boost Scheme is likely to have less of an impact here.
