The bad news for residential construction doesn’t let up. The ABS’s dwelling commencement data released this morning shows a huge drop in housing and non-house residential construction commencements in the September quarter. They fell 6.8% in seasonally adjusted terms, on top of a 4% fall in the June quarter.
Worst was non-house dwellings — apartments and townhouses — which fell more than 12% in seasonally-adjusted terms. Housing commencements fell slightly but were more resilient. Victoria was a disaster area for the housing industry, with dwellings down 15% to levels last seen during the GFC, despite a big rise in public sector housing starts. Western Australia, where regional communities affected by the mining boom are suffering acute housing shortages, saw a fall of 5%, also back to GFC levels. The only good news is in Queensland, where post-disaster reconstruction now appears fully underway and drove robust 8% growth in commencements — despite the glut of dwellings in areas like the Gold Coast. But in NSW, commencements fell nearly 5%.
As we’ve repeatedly seen, this huge slump in the housing construction industry is offsetting the boom in construction occasioned by the mining industry. But in areas like Sydney, which have seen a prolonged slump in housing construction it is rapidly adding to a serious housing undersupply problem. Between 2001 and 2004, quarterly housing starts regularly topped 12,000 in NSW; now they’re barely over 7,000 and in recent years have dipped as low as 5,000. Victoria managed over 10,000 starts a quarter even during the GFC.
From the perspective of a society and media obsessed with housing prices, it’s not such a big issue, but for renters, low income earners and young families living in the boom areas of WA and Qld and Sydney, it’s the stuff of day-to-day financial pressure that governments seem oblivious to. The NSW government’s review of that state’s planning framework has only just concluded its first stage, meaning the sclerotic, bureaucratic system developers face to gain approval for housing development will remain into 2012 and probably beyond.
Housing is notionally a significant issue on the COAG agenda but dropped entirely off it in 2011 and, in any event, Julia Gillard seems less interested in using COAG as an effective reform tool than Kevin Rudd. Housing supply is a systemic failure across all levels of government in Australia, and no politician seems interested in doing much beyond talking about it.
Bernard
A good post. Here is my view on the new housing market…
There is little doubt that a fall in interest rates would have a positive impact on new housing starts. But, despite calls from the development industry for rates to continue to fall; there really isn’t any real need to build more new dwellings at present.
Whilst the Australian housing market was undersupplied in 2009 – developers only built enough new homes for 330,000 people, but really needed to build for 465,000 people – the development community have been oversupplying the market since then. Last financial year, the construction industry built enough homes for 400,000 people but really only needed to house 310,000.
Furthermore Australia consistently overbuilt during the first half of the noughties. Many of these new dwellings were secondary homes – used for holidays and the like – or were built as speculative investments, where the promise of capital growth outweighed the need for a rental return.
The recent drop in population growth has seen the underlying demand for housing drop by a third across Australia since 2009. Queensland and Victoria have experienced even greater falls.
As a result, we now have considerable spare capacity in our housing market. This explains why new dwelling sales continue to slide across the country.
In addition, we no longer need to build as many new homes as we once did. Social and demographic changes – children living at home longer; increasing longevity (coupled with diminishing superannuation balances); an increase in the birth rate (baby bonus impact) and more migrants from countries with traditionally large families – have lifted our household size, resulting in fewer new dwellings per capita.
I believe that 2012 will be a slow year for new housing starts. Just 135,000 new dwellings are expected to be built over the next twelve months. This is 15% less than last year. This level of new supply would comfortably cater for the expected increase of around 325,000 in the Australian population next year.
Forward estimates too aren’t that bullish being, on average, between 150,000 and 160,000 new housing starts each year over much of the next decade.
Whilst declining interest rates would temporarily boost new housing starts, the only real reason why housing starts would need to rise across Australia would be to cater for higher levels of population growth.
Michael Matusik
I’m with Michael in some respects, in that this seems to be a headline written from an old-timers editor book.
The only thing that is disastrous about lower construction figures is that we seem to inhabit, or the construction blokes are great at perpetuating the myth, that our entire economy is built on housing construction.
We have for much of the past, but this itself is unsustainable. If the best we can do is grow by building more houses then maybe our economy is really up the shite.
Yes, I know the answer to that one. I don’t see it as a big issue that housing and otehr construction carries so much weight in the economy, but maybe it doesn’t.
Maybe the spruikers have been having us on all this time, and all that negative gearing really is just chewing up vast govt resources that add very little to the economy..
Just a thought!