Australia's biggest-ever house-construction boom will turn into a big surplus, with Victoria and WA bearing the brunt of the problem, according to a BIS Shrapnel report.
Australia’s biggest-ever house-construction boom has peaked, and not even a slowdown in new housing starts will prevent the country from running into a net surplus in three years’ time.
The national undersupply, which peaked at 108,000 homes last financial year, will fall into a net glut of over 12,000 dwellings in the year to June 2018, as completions from the sustained surge of building activity come on line, forecaster BIS Shrapnel says in its Building in Australia 2015-2030 report. It will then deepen for at least the next two years.
But the headline predictions mask regional variations showing that even though Victoria – through apartments – and WA – through houses – will bear the brunt of the slowdown after years of rapid production, NSW will expand its level of construction as it tries to overcome what will remain a deficit of housing.
BIS is not the first to call time on the house-construction boom that has kept the economy ticking over and absorbed much of the slack created as minerals-based investment dries up.
Lobby group the Housing Industry Association has previously called a near-11 per cent decline in housing starts this year. To go higher would risk pushing inflation in an already super-charged construction industry to worrying levels.
But the report spells out in detail the diverging housing picture between states. New-dwelling starts – which topped 200,000 for the first time in the 12 months to March – will fall from an expected peak of 210,000 in 2014-2015 to almost 164,000 in 2018.
The imbalance is clear from the fact that even as oversupplied Victoria and a mining bust-hit Perth go into an oversupply in June 2018, NSW will still face a shortfall of 40,000 dwellings.
Even the most populous state will slow by 2018, however, as interest rates start to pick up and construction of medium- and higher-density homes declines.
“NSW has resumed its leading position and will retain that going forward,” BIS Shrapnel associate director Kim Hawtrey said. “But in 2018, it will drop back under 50,000 for the first time in four years.”
Tighter lending to investors will also curb home-building as banks respond to the call of regulator APRA to limit loans to investors. Any change to the tax treatment of housing related loans, such as on negative gearing or capital gains concessions, could also dampen supply.
WA will suffer the most, with reductions in housing starts of 13 per cent this year, 16 per cent next year and 18 per cent in the year to June 2018, BIS said.
“It’s a gold rush state and in that state the building cycle tends to go up and down with the gold rush – but in this case, it’s iron ore,” Dr Hawtrey said.
In Victoria, continued detached house construction will limit the decline that will come in apartments – which are still soaring – to single digits.
“Compared with total growth in households, they’ve built enough,” Dr Hawtrey said. “They’re going into oversupply. They built too many apartments in one location, which is inner Melbourne.”
The national slowdown was not a disaster, however. A serious hit to house-building would only come from surging interest rates or a surging unemployment rate, neither of which was likely, Dr Hawtrey said.
“We don’t see a recession in home-building,” he said. “We are just calling a correction from the very, very high levels which are unsustainable.”
SOURCE: THE AUSTRALIAN FINANCIAL REVIEW
WRITTEN: MICHAEL BLEBY
PUBLISHED: 19 JULY 2015
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