RESIDENTIAL CONSTRUCTION - WHAT'S. THE STORY FOR SOUTH AUSTRALIA IN. 2015/16? Dr Harley Dale, HIA Chief Economist. HIA I
RESIDENTIAL CONSTRUCTION - WHAT’S THE STORY FOR SOUTH AUSTRALIA IN 2015/16? Dr Harley Dale, HIA Chief Economist HIA Industry Outlook Breakfast Adelaide, April 2016
The most comprehensive housing report card produced in Australia Summer 2016 edition:• The global economy – oh dear, what can the matter be?!
• The SA economy has hit the void; • New housing starts set to fall further; • Renovations activity in SA appears to be treading water For more information regarding HIA Economics, please contact us at: (02) 6245 1393 or
[email protected]
Setting the Scene for South Australia
What does the global economy mean for us?
• The US economy is recovering and interest rates will rise further ... • Nearly everywhere else is apparently terrible …. Eurozone, Latin America, China … • …world growth forecasts have been lowered. • Plus, it’s Brexit time! • Oil prices are a net plus. • What does all this mean for SA?
The SA economy needs policy action • The economy is in a void and … • … we need a vision and strategy for the future which … • … includes action now. • Housing is integral to this view, but can’t be the leader. • Renovations is a good example of how SA’s housing industry is always an important part of the mix – I’ll come back to that.
Population growth is our challenge South Australia's Population Growth by Component - Moving Annual Total Source: ABS 3101.0
25,000 20,000 15,000 10,000 5,000 0
Total MAT
Natural Increase MAT
Net Overseas Migration MAT
Net Interstate Migration MAT
• Population growth is (at 0.7%) growing at it slowest pace in ten years.
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
-10,000
Sep-95
-5,000
The Unemployment Rate needs to fall back below the black South Australia's Unemployment Rate Source: ABS Labour Force
11.0
10.0
8.0
20 Year Average Unemployment Rate
7.0 6.0
5 Year Average Unemployment Rate
5.0
Feb-16
Feb-15
Feb-14
Feb-13
Feb-12
Feb-11
Feb-10
Feb-09
Feb-08
Feb-07
Feb-06
Feb-05
Feb-04
Feb-03
Feb-02
Feb-01
Feb-00
Feb-99
Feb-98
Feb-97
4.0
Feb-96
Per cent
9.0
The SA Economy is growing below par Gross State Product - South Australia Source: ABS 5220.0; Access Economics 6.0
5.0 Long term average
Per cent
4.0
Forecast
3.0
2.0
1.0
Year ended June
• Growth of 2.0% in 2014/15 is thanks to us; 2015/16 and 2016/17 is weaker – again thanks (not only) to us.
2017/18
2016/17
2015/16
2014/15
2013/14
2012/13
2011/12
2010/11
2009/10
2008/09
2007/08
2006/07
2005/06
2004/05
2003/04
2002/03
2001/02
2000/01
1999/00
1998/99
1997/98
1996/97
1995/96
1994/95
0.0
What does this mean?
We’re the follower, not the leader, but … South Australia
Population Growth Scenario Series A Series B Series C Population in 2015
1,698,594
1,698,594
1,698,594
Population in 2050
2,403,461
2,197,574
2,063,783
Implied annual population growth rate
1.0%
0.7%
0.6%
Additional dwellings required per annum
7,777
5,505
4,029
9,202
6,931
5,454
Medium real income growth
10,628
8,356
6,880
High real income growth
12,053
9,781
8,305
Required annual build rate Low real income growth
Source: HIA Economics
• Remember that population is growing at 0.7 per cent per annum.
… we want to build more? New Home Building in SA: past, present, future... 14,000 12,000
12,000 10,000
10,873 9,943
11,041 9,800
9,595
8,000 6,000 4,000 2,000 0 LT Average Source: HIA Economics, ABS
20 yr average
10 yr average
Current
Future requirement 1 Future requirement 2
Construction Conditions in South Australia
Interest rates are supporting housing activity Interest Rates, Australia Source: HIA Economics, RBA
9.00
2.90
8.00
2.80 2.70 2.60
6.00
2.50
5.00
2.40
4.00
2.30
3.00
2.20
Mortgage Rate Margin to OCR (RHS)
Discounted Variable Mortgage Rate
RBA Cash Rate
Mar-16
Feb-16
Jan-16
Dec-15
Nov-15
Oct-15
Sep-15
Aug-15
Jul-15
Jun-15
May-15
Apr-15
Mar-15
Feb-15
Jan-15
Dec-14
Nov-14
Oct-14
Sep-14
Aug-14
Jul-14
2.00 Jun-14
1.00 May-14
2.10
Apr-14
2.00
Mar-14
% Interest Rate
7.00
Small Business Variable Term Loan
Housing Starts are on wane Total Dwelling Starts – South Australia Source: ABS 8752 4,000 3,500
Number
3,000 2,500
2,000 1,500
Seasonally Adjusted
• •
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
1,000
Trend
In 2013/14 total starts increased by 21%, compared to HIA’s forecast for +17%. In 2014/15 total starts fell by 2.9%, compared to HIA’s forecast (August) for -1.4%.
Housing Starts – is the ‘devil’ in the detail? South Australia Dwelling Commencements by Dwelling Type - Year to June 2015 Source: HIA Economics, ABS
8,000
7,532
7,000 6,000 5,000 4,000 3,000
2,000 732
1,000
743
240
833 110
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 SA
Building approvals have bottomed out Building Approvals - SA
Source: ABS Building Approvals, HIA Economics
1,700 1,500 1,300
900 700 500
Seasonally adjusted
Trend
Jan-16
Jan-15
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
300
Jan-06
Number
1,100
Land sales are as you’d expect Adelaide
47%
Outer Adelaide
31%
Yorke and Lower North
8%
Murray Lands
-4%
South East
-10%
Eyre
Northern -40%
Source: CoreLogic RP Data, HIA Economics
RESIDENTIAL LOT SALES - ANNUAL % CHANGE - 6 MTHS TO SEP 2015
-13%
-30% -30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
House Prices growth is slow Change in house values to February 2016 Source: CoreLogic RP Data
25%
22.8%
20% 15% 11.8%
10%
9.7% 8.1% 6.1%
5.4%
5%
3.0% 1.3%
3.0%
0.9%
5.0%
1.9%
0.9%
0% -3.2%
-5% Sydney
Melbourne
Brisbane
Year-on-Year
Adelaide
-2.3%
Perth
-2.6%
Hobart
Year-to-Date
Darwin
Canberra
Dec-2015
Dec-2014
Dec-2013
Dec-2012
Dec-2011
Dec-2010
Dec.2009
Dec-2008
Dec-2007
Dec-2006
Dec-2005
Dec-2004
Dec-2003
Dec-2002
Dec-2001
Dec-2000
Dec-1999
Dec-1998
Dec-1997
Dec-1996
Dec-1995
Dec-1994
$ million (moving annual total)
Renovations activity is holding up Renovations Investment in South Australia - Moving Annual Total
Source: ABS State Final Demand 5206.0 2,400
2,200
2,000
1,800
1,600
1,400
1,200
1,000
Harley’s Policy Rant
We need a VAWS • Vision & Action with Strategy. • Housing is an important contributor to this. • Renovations incentives, for example. • Residential consolidation incentives, for example. • Major reform – that’s harder.
• Then there’s negative gearing …
The Residential Outlook
Where to for housing starts? SA Housing Starts Forecasts Source: HIA Economics 13.00
11.91
12.00 11.00
11.22
12.13
12.34 Forecast
10.95
10.70
10.70
10.39
10.14
Thousand dwellings commenced
10.00 9.13 9.00
9.96 9.32
8.83
8.00 7.00 6.00 5.00 4.00
• •
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)
Approvals currently imply more starts. No VAWS, no 2017/18 bounce?
2015/16
2016/17
2017/18
Renovations activity should hold up? SA Renovations Forecasts Source: HIA Economics 2,500
Forecast
2,193
Value of Investment (millions)
2,000
2,087 1,883
2,098
2,034
2,039 1,934
1,963
1,858
1,859
1,878
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
1,775
1,941
1,500
1,000
500
2018/19
What does the global economy mean for us?
• The short term challenges for our industry are considerable. • It could be worse.
• In SA it’s not about our industry, it’s about our economy and future economic prosperity, … • … which feeds back into our industry.
Further information … •
HIA Economics is always at hand to assist with any queries you have.
•
Contact me:
[email protected] or
[email protected]
•
Extended HIA Hotspots report is on its way in 2016.
•
Follow me on LinkedIn and also take a look at the Australian Construction Insights (ACI) showcase page – both have regular postings related to Australia’s construction industry.
•
ACI is the economic consultancy arm of HIA Economics. ACI produces comprehensive and unique insights into the new housing, renovation, non-residential building, and engineering sectors.
•
ACI Construction Brief – free fortnightly e-news.
•
Please contact ACI at
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THANK YOU FOR YOUR TIME Harley Dale, HIA Chief Economist economics.hia.com.au