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Will the NSW Upturn Continue in 2016? Shane Garrett, HIA Senior Economist HIA Industry Outlook Breakfast Sydney, March 2016
Starts have soared to record highs Total Dwelling Starts – New South Wales
Seasonally Adjusted
Trend
Sep-15
Sep-14
Sep-13
Sep-12
Sep-11
Sep-10
Sep-09
Sep-08
Sep-07
Sep-06
Sep-05
Sep-04
Sep-03
Sep-02
Sep-01
Sep-00
Sep-99
Sep-98
Sep-97
Sep-96
Sep-95
Number
Source: ABS 8752 17,000 16,000 15,000 14,000 13,000 12,000 11,000 10,000 9,000 8,000 7,000 6,000 5,000 4,000
Houses and High Rise have dominated… New South Wales Dwelling Commencements by Dwelling Type - Year to June 2015 Source: HIA Economics, ABS
7,000
6,380
6,000
5,328
5,000 4,000 3,000 2,000
1,000
539
923 210
122
0 Houses
One Storey
Two or more storeys In a one or two storey In a three storey block In a four or more storey block block
Semi-detached, row or terrace houses, townhouses
Flats units or apartments
…and there remains a large Pipeline of High Density Snapshot of the Building Activity Pipeline - Flats, units and apartments Source: HIA Economics, ABS 8752.0, ABS 8731.0
12,000
45,000 40,000
10,000
35,000
8,000
30,000 25,000
6,000
20,000
4,000
15,000 10,000
2,000
5,000
Commenced
Dec-15
Dec-14
Not yet commenced
Dec-13
Dec-12
Dec-11
Approved (1 month lag)
Dec-10
Dec-09
Under construction (RHS)
Dec-08
Dec-07
Dec-06
Dec-05
-
Completed
What makes the NSW Market Tick? Confidence
Population
Economic Conditions
Interest Rates
Home Prices
Rental Market
NSW Population Growth is Solid 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
Total MAT
Natural Increase MAT
Net Overseas Migration MAT
Net Interstate Migration MAT
Jun-15
Jun-14
Jun-13
Jun-12
Jun-11
Jun-10
Jun-09
Jun-08
Jun-07
Jun-06
Jun-05
Jun-04
Jun-03
Jun-02
Jun-01
Jun-00
Jun-99
Jun-98
Jun-97
Jun-96
-60,000
Jun-95
-40,000
Population will see Strong Growth Long Term
Population Growth Scenario Series A Series B Series C Population in 2015
7,618,241
7,618,241
7,618,241
Population in 2050
11,359,104
10,665,010
10,268,959
1.1%
1.0%
0.9%
41,274
33,616
29,246
Low real income growth
46,824
39,166
34,796
Medium real income growth
52,373
44,715
40,346
High real income growth
57,923
50,265
45,895
Implied annual population growth rate Additional dwellings required per annum
Required annual build rate
Source: HIA Economics
What makes the NSW Market Tick? Confidence
Population
Economic Conditions
Interest Rates
Home Prices
Rental Market
Risks Continue to Haunt World Economy • World economic recovery has stumbled a bit – particularly emerging markets • The collapse in oil prices has hurt some – but benefitted most • US interest rates increased late last year • China risks still weigh most heavily on Australia • Several geopolitical risks – ‘Brexit’ vote in June – President Trump?
• The shadow of debt still looms large globally
NSW Economy doing Quite Nicely • GDP grew surprisingly quickly during the final quarter of 2015 – well done, consumers! • Inflationary pressures are very muted, partly thanks to oil prices • The weakness of the Australian dollar is making the economy’s traded sectors more competitive • NSW is benefitting from the rebound in services exports, like tourism, education and high skill services • NSW labour market has reaped the rewards and is performing strongly • Residential building is propping growth up… • …but non-residential construction is really struggling
What makes the NSW Market Tick? Confidence
Population
Economic Conditions
Interest Rates
Home Prices
Rental Market
Rental Price Growth has Slowed… CPI Rental Growth – Sydney Source: ABS 6401 3.0
9.0 8.0
2.5
% change in index
7.0
2.0
6.0 5.0
1.5 4.0
1.0
3.0 2.0
0.5 1.0
0.0
Qtrly (LHS)
• •
Annual (RHS)
Rental vacancy rate in Sydney at 2.1 per cent during December 2015 quarter Rental yields at 3.3 per cent (houses) and 4.3 per cent (units) in February 2016
Dec-15
Dec-14
Dec-13
Dec-12
Dec-11
Dec-10
Dec-09
Dec-08
Dec-07
Dec-06
Dec-05
Dec-04
Dec-03
Dec-02
Dec-01
Dec-00
Dec-99
Dec-98
Dec-97
Dec-96
Dec-95
0.0
…but the Sydney market is still tight Rental Market Indicators by Capital City, December 2015 quarter Source: ABS; SQM Research 5.0% 3.9%
4.0% 3.0% 2.0%
2.7%
2.5%
2.3% 1.8%
2.2%
2.0%
1.7% 1.0%
1.0%
3.8%
1.2%
1.0%
1.0%
0.0% -1.0% -1.5%
-2.0% -3.0%
-2.7%
-2.9%
-4.0% Sydney
Melbourne
Brisbane
Adelaide Rental Growth
• •
Perth
Hobart
Darwin
Canberra
Vacancy Rate
Rental vacancy rate in Sydney at 1.8 per cent during December Rental yields at 3.2 per cent (houses) and 4.2 per cent (units) in June
Real Rental Price Growth Annual Net Overseas Migration
Jun-15
Feb-15
Oct-14
Jun-14
Feb-14
Oct-13
Jun-13
Feb-13
Oct-12
Jun-12
Feb-12
Oct-11
Jun-11
Feb-11
Oct-10
Jun-10
Feb-10
Oct-09
Jun-09
Feb-09
Oct-08
Jun-08
Feb-08
Oct-07
Jun-07
Feb-07
Oct-06
Jun-06
Feb-06
Oct-05
Jun-05
Annual Change (%) 7%
6%
4%
3%
200
2% 150
1% 100
0%
-1% 50
-2% 0
Thousands
Overseas Migration is Key Real Rental Price Growth and Net Overseas Migration, 2005 to 2015
Source: ABS
350
300
5%
250
What makes the NSW Market Tick? Confidence
Population
Economic Conditions
Interest Rates
Home Prices
Rental Market
Sydney Prices have cooled a little… Change in home values to February 2016 Source: CoreLogic RP Data
12% 10%
11.1% 9.5% 8.5%
8% 6.2%
5.5%
6%
4.5%
3.8%
4%
2.0%
2%
2.8% 1.5% 0.3%
0.3%
0.2%
0% -0.2%
-2% -3.1%
-4% Sydney
Melbourne
Brisbane
Year-on-Year
Adelaide
Perth
-2.9%
Hobart
Quarter
Darwin
Canberra
…but Prices remain high relative to earnings Median Dwelling Price to Average Earnings, 2001 and 2016 9.02 8.00
8.02
6.83
7.02 6.02
5.94
5.02
6.17
5.88
5.55
5.91
5.32
4.63 4.01
4.02
3.55
3.27
3.68
3.46
3.02
2.61
2.02 1.02 0.02 Sydney Source: CoreLogic RP Data; RBA
Melbourne
Brisbane
Adelaide February 2001
Perth
Hobart February 2016
Darwin
Canberra
Affordability could be worse… Ratio of Mortgage Repayments to Average Earnings, 1994 to 2015 - Sydney Source: CoreLogic RP Data; ABS 6302.0; RBA
60% 55% 50% 45% 40% 35%
Nov-15
Nov-14
Nov-13
Nov-12
Nov-11
Nov-10
Nov-09
Nov-08
Nov-07
Nov-06
Nov-05
Nov-04
Nov-03
Nov-02
Nov-01
Nov-00
Nov-99
Nov-98
Nov-97
Nov-96
Nov-95
30%
No. of sales Value (LHS)
Sep-2015
Jun-2015
Mar-2015
Dec-2014
Sep-2014
Jun-2014
Mar-2014
Dec-2013
Sep-2013
Jun-2013
Mar-2013
Dec-2012
Sep-2012
Jun-2012
Mar-2012
Dec-2011
Sep-2011
Jun-2011
Mar-2011
Dec-2010
Sep-2010
Jun-2010
Mar-2010
Dec-2009
Sep-2009
Jun-2009
Mar-2009
Dec-2008
Sep-2008
Jun-2008
Mar-2008
Dec-2007
Sep-2007
450,000 3,500
400,000 3,000
350,000
2,500
2,000
300,000 1,500
250,000
1,000
200,000
500
150,000 0
Source: CoreLogic RP Data, HIA Economics
$
Shortages of Land seem to be intensifying RESIDENTIAL LAND SALES & MEDIAN LOT VALUE - SYDNEY
What makes the NSW Market Tick? Confidence
Population
Economic Conditions
Interest Rates
Home Prices
Rental Market
Interest rates could go lower… Previous RBA Official Cash Rate Troughs 5.0%
4.75%
4.75%
4.5%
4.25%
4.0% 3.5% 3.00%
3.0% 2.5%
2.00%
2.0%
1.75%
1.5%
1.50%
1.0% 0.5% 0.0% Jul '93 to Jul '94 Source: RBA
Dec '98 to Oct '99
Dec '01 to Apr '02
Apr '09 to Sep ' 09
May '15 to date
How about this?
Or even this?
…but will have to rise eventually Magnitude of Previous RBA Official Cash Rate Increases (Basis Point Change) 275
Aug '94 to Dec '94
150
Nov '99 to Aug '00
300
May '02 to Mar '08
175
Oct '09 to Nov '10
0 Source: RBA
50
100
150
200
250
300
350
What makes the NSW Market Tick? Confidence
Population
Economic Conditions
Interest Rates
Home Prices
Rental Market
Confidence hasn’t had a good run Consumer Confidence Source: Westpac-Melbourne Institute 125 120 115 110
100 95 90
85 80
Feb-16
Feb-15
Feb-14
Feb-13
Feb-12
Feb-11
Feb-10
75
Feb-09
Index
105
Additional Mortgage Repayments Resulting from Stamp Duty, November 2015 50
45
43.3
46.9
45.3
Thousands of Dollars
40
33.7
35 28.3
30
30.0
25 20
17.1
15
11.6
10 5 0
NSW (3)
VIC (2)
QLD (8)
SA (6)
WA (5)
TAS (7)
NT (1)
ACT (4)
Source: RBA; CoreLogic RP Data, HIA Stamp Duty Watch
Stamp Duty is also quite a Deterrent
What’s coming down the tracks?
NSW market will ease back in 2016/17 NSW Housing Starts Forecasts Source: HIA Economics 70.00
Forecast 59.59
60.00
55.43 51.30
Thousand dwellings commenced
50.00
45.97 41.13
40.00 32.98 30.00
30.25
34.48
31.91
32.40
40.36
30.70
24.06
20.00 10.00 0.00 2005/06 (a) 2006/07 (a) 2007/08 (a) 2008/09 (a) 2009/10 (a) 2010/11 (a) 2011/12 (a) 2012/13 (a) 2013/14 (a) 2014/15 (a) 2015/16
2016/17
2017/18
Renovations will see modest recovery Australia Renovations Forecasts Source: HIA Economics 35,000 33,980
34,000 33,000
Forecast 33,346
33,128
32,328
32,274
32,362
Value of Investment (millions)
32,000
31,486 30,878
31,000 30,000
30,353 29,117
29,292
29,541
29,000 28,000 27,000 26,000 2006/07 (a) 2007/08 (a) 2008/09 (a) 2009/10 (a) 2010/11 (a) 2011/12 (a) 2012/13 (a) 2013/14 (a) 2014/15 (a)
2015/16
2016/17
2017/18
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THANK YOU FOR YOUR TIME Shane Garrett, HIA Senior Economist economics.hia.com.au