Property News

Soft year for residential sector

17 October 2006

It has been another soft year for the residential sector amidst stark differences in housing conditions across the nation, according to the Housing Industry Association's 'HIA National Outlook' for the September quarter.

HIA Chief Economist, Mr Harley Dale, said that while the housing sector certainly isn't about to nosedive, the higher interest rate climate in 2006 will delay a much needed recovery.

"Outside of the resource-abundant areas of Australia, housing conditions remain softer than they were. This situation will persist throughout 2006/07," Mr Dale said.

"In the resource-poor states sentiment towards housing has been dented and very low housing affordability is stifling any chance of a recovery in the short term."

"The resource abundant states, while continuing to look healthy on the surface, are increasingly banging up against the wall of land supply constraints and a lack of skilled labour," Mr Dale said.

"The recently announced 'Skills for the Future' package is a very positive development for the industry. At the same time, however, progess in addressing low housing affordability sits somewhere between slow and non-existent, and moves to address critical land supply shortages began after the horse had bolted," Mr Dale added.

"It is little wonder that once you put higher interest rates on top of this situation we won't see the housing industry grow in 2006/07."

"Housing starts fell by 4% to a level of 150,728 in 2005/06, compared to HIA's forecast for a 5% decline. The pull-back in starts nationally has been moderate this cycle, but this masks substantial differences across states."

"In Western Australia starts have shot up by 25% over the last three years but over this same period starts in New South Wales have plummetted by 37%."

"Housing starts are forecast to fall by 1% in 2006/07 as higher rates delay a recovery in New South Wales and Victoria and a shortage of available land in Western Australia sends detached house starts lower. Housing starts are forecast to grow by 3% in 2007/08 and by 6% in 2008/09, reaching a level of 163,000. This is lower than our previous forecast for over 165,000 starts," Mr Dale said.

"The renovations sector continues to hold up better than new housing. Expenditure on renovations fell by 2% in 2005/06 to $26.8 billion, still the third highest amount on record. In a relatively stable house price environment little change in spending on renovations is envisaged for 2006/07 before growth of 8% over 2007/08 – 2008/09."