Monday, 30th March 2020

register | forgot password?

New Housing Market to Gain Traction

Monday, 01st November 2010

Leading industry analyst and economic forecaster, BIS Shrapnel, is expecting an upturn in new lot production from 2011/12 across all major residential centres, following a less than impressive performance in 2010/11.

According to BIS Shrapnel’s Outlook for Residential Land, 2010 to 2015 report series, the market is currently suffering a hangover from the expiry of the First Home Owner’s Grant Boost Scheme, sharp interest rate rises in 2009/10 and the lingering influence of the Global Financial Crisis (GFC). However, a rising undersupply in most markets, more stable interest rates and strengthening economic conditions will see new house and land activity gain momentum from 2011/12.
 
Senior project manager and report series author, Mr Angie Zigomanis, says the First Home Owner’s Grant Boost Scheme had a significant impact on new lot production during 2009/10 – not only directly through first-home purchasers themselves, but also indirectly by increasing demand from upgraders who were selling their dwellings to first-home buyers. Following the expiry of the boost scheme, first-home buyer demand is now well down on last year’s levels and as such, overall demand for new houses has moderated through 2010.
 
The report series found Melbourne and Adelaide markets reached long-term highs for lot production in 2009/10, while there was a solid rebound in Perth and Sydney after activity fell in 2008/09. Lot production in the South East Queensland markets of Brisbane, the Gold Coast and Sunshine Coast was much slower as new house buyer activity was affected by the weak state economy and tight lending conditions for developers.
 
“The combination of the expiry of the First Home Owner’s Grant Boost Scheme at the end of 2009 and the 1.5 percentage point increase in the cash rate between October 2009 and May 2010 has reduced turnover of dwellings and consequently demand for new houses,” says Zigomanis. “However, the impact is expected to be only temporary as the market works through the ‘pull forward’ effect created by the scheme. We expect first-home buyer demand will return to normal levels throughout 2011.”
 
BIS Shrapnel says the current slowdown will represent only a slight pause in what is expected to be an extended upturn in demand for new housing. Sydney, Perth and South East Queensland are building new dwellings below the level required by population growth and the underlying dwelling deficiency is increasing in these centres. Although construction in Melbourne and Adelaide is at, or close to, record levels, the current underlying deficiency has not yet been fully eroded. These pressures, along with normalising first-home buyer and upgrader demand, will underpin the acceleration in demand for land through 2011.
 
“Pent up demand and rising employment and income growth from recovering economic conditions should help confidence return after the recent interest rate rises,” says Zigomanis. “This will stimulate activity in housing markets and consequently land markets. Nevertheless, the upturn will vary nationally, depending on overall affordability in each market, and the level of pent up demand.”
 
However, BIS Shrapnel warns the spectre of rising interest rates will eventually have an impact across all markets. Employment and income growth will overcome some of the initial rises and will continue to support new dwelling demand. Inflationary pressures are subsequently expected to become more acute, with the variable rate moving past 8.5 per cent to reach a forecast peak of 9.1 per cent in 2012/13. This will have a negative impact not only on residential demand, but the economy as well, with residential activity forecast to fall off across all markets over the subsequent two years.
 
Outlook for lot production by region
 
Sydney
 
Lot production in Sydney fell from a peak of nearly 9,000 lots in 1999/2000 to an average of around 1,700 lots per annum over 2005/06 and 2008/09. This is below the level of lot production in Adelaide, and even that of the far smaller markets of the Gold Coast and Sunshine Coast. Lot production was stymied by the high cost of purchasing a new house relative to purchasing an established dwelling.
 
However, a confluence of factors has helped underpin the start of a recovery in lot production in outer Sydney. Rising interest rates maintained pressure on affordability, which caused house prices to fall in real terms, and a decline in construction levels has created an undersupply which has led to strong rental growth. The introduction of the First Home Owner’s Grant Boost Scheme and 40-year low interest rates in 2008/09 signalled an improvement in demand for houses and price growth began to return.
 
“The rise in prices for established houses has meant the premium required to purchase a new house compared to an established house has narrowed,” says Zigomanis. “Consequently, upgraders have become more willing to sell their current dwelling to purchase a brand new house on a new subdivision.”
 
As a result, BIS Shrapnel estimates land production increased to just under 3,000 lots in 2009/10, with developer activity also being assisted by a reduction in State Government levies, which has allowed developers to proceed with some of those projects that were made marginal when these imposts were introduced. The upturn in lot production has been greatest in North West Sydney where incomes are higher and the premium to purchase a new house over an established house is narrower than in South West Sydney and on the Central Coast.
 
However, as the overall Sydney upturn gains momentum and prices continue to rise, lot production will pick up in both South West Sydney and the Central Coast. Demand will be underpinned by a significant deficiency of dwellings Sydney-wide, and further strengthening of economic conditions and income growth. Lot production is expected to rise to a peak of 7,200 lots by 2012/13 as outer Sydney accommodates much of the upturn in new house activity. This is below the 7,600 lots per annum average over the five years to 2001 and reflects the still high cost of land, which will maintain the shift to less expensive medium and high-density dwellings and infill and knockdown development in established areas.
 
Perth
 
Lot production in Perth peaked at 12,300 lots in 2005/06, and has since fallen significantly. This peak was underpinned by a booming local economy, which drove increased migration inflows and strong wages growth. The land market is also expected to have been left in oversupply after a 143 per cent increase in the median house price and a 205 per cent increase in the median land price from 2002 to 2007. Combined with the impact of rising interest rates, which peaked in 2008, affordability for housing and land deteriorated significantly, and lot production subsequently moved into a downturn from 2006/07.
 
BIS Shrapnel says the decline was exacerbated by the impact of the GFC, which was initially felt more strongly in Perth as commodity prices fell and additional spending on resources projects was put on hold. Constraints on finance also prevented developers being able to fund further subdivision. Together with the impact of excess lot supply after the peak in 2005/06, lot production more than halved to less than 6,000 lots in 2008/09, and has stayed at a similar level in 2009/10.
 
“However, the slump will be short lived,” says Zigomanis. “First-home buyer incentives and low interest rates stimulated demand in 2009/10, with new house approvals in metropolitan Perth and the Peel region rising by 33 per cent and well and truly soaking up the excess land supply. Lot production is now poised to accelerate on the back of increased confidence due to a recovery in commodity prices and investment in the resource sector.”
 
Similar to the Sydney market, land prices in Perth also overshot the mark at their peak. However, in contrast to Sydney, where high government charges meant that developers could not reduce prices to ‘meet the market’, median land prices in outer Perth and Peel are now 13 per cent below their peak, which has allowed new houses to be more affordably produced, assisting the upturn in new house and land demand.
 
With the Perth market now in deficiency after three years of falling dwelling activity, the pent up demand will flow through to the new house and land market through to 2012/13. Although new house approvals are expected to show a marginal decline in 2010/11 due to the fall off in first-home buyer demand, there will nevertheless be an increase in lot production now that the excess supply is estimated to have been absorbed. Lot production in outer Perth and Peel is forecast to continue to rise through to a peak of 12,600 lots in 2012/13 – similar to the 2005/06 peak – as population and income growth in Perth is driven by the return to booming conditions in the resource sector.
 
Brisbane
 
New house activity and lot production in Brisbane has weakened considerably since peaking during 2007 and 2008. The affordability issues that had emerged after strong price growth up to 2008 have persisted, while weak economic conditions in Queensland are also impacting confidence and population growth.
 
“Despite the low interest rates of 2008/09 and the introduction of the First Home Owner’s Grant Boost Scheme, there has been little rebound in new house activity in 2009/10 in Brisbane,” says Zigomanis. “Employment growth – particularly blue collar employment – has been weak, and together with the reduction in Brisbane’s affordability advantage over the other eastern state capitals, has caused interstate migration inflows to slow sharply, curtailing demand.”
 
BIS Shrapnel says any upturn in the Brisbane market is expected to lag, with the next round of big investment in resource projects not significantly contributing to the Queensland economy until 2011/12. With continued weak activity expected in 2010/11, the low level of construction means the underlying deficiency of dwellings will rise. This will underpin a sharp rise in new dwelling and lot production over 2011/12 and 2012/13 as economic growth accelerates. Lot production in metropolitan Brisbane is forecast to rise from an estimated 8,500 lots in 2010/11 to a high of 12,300 lots by 2012/13, before peaking interest rates in 2012/13 slow activity in subsequent years.
 
Gold Coast
 
Demand for land on the Gold Coast has collapsed after a peak of 3,500 lots was recorded in 2006/07. New lot activity began to ease in 2007/08 as sharp rises in prices impacted affordability, before the GFC resulted in many local developers and financiers either collapsing or experiencing funding issues. As a result, lot production fell to 1,500 lots in 2008/09 and is estimated to have edged down further to 1,400 lots in 2009/10. This is the lowest level of lot production on the Gold Coast for at least the past 20 years.
 
Demand on the Gold Coast has also been impacted by strong house price rises up to 2008, which reduced the region’s affordability advantage over the eastern state capitals, and consequently resulted in a slowdown in interstate migration. The insertion of infrastructure charges has also affected the viability of developments that were bought at the peak of the market, and has stopped production of some subdivisions.
 
BIS Shrapnel expects limited improvement in activity in 2010/11, with developers still affected by the constrained financial environment. However, the low level of new dwelling activity will underpin a rising deficiency of dwellings, and with both the financial and economic environment in Queensland expected to be stronger from 2011/12, a more rapid pick up in new housing starts is expected to occur. This will drive an increase in lot production, which is forecast to peak at 3,800 lots by 2012/13 – the highest level since 2003/04 – before rising interest rates reach a level sufficient to curtail the upturn and result in a slowdown form 2013/14.
 
Sunshine Coast
 
Sunshine Coast lot production has weakened from a peak of 2,300 lots in 2007/08 – although even this peak was well below the previous high of 3,700 lots in 2003/04. BIS Shrapnel notes a key component of demand in the Sunshine Coast market is empty nesters aged 55 and over who sell their existing homes and embark on a sea change. However, after the substantial price rises on the Sunshine Coast up to 2003/04, the trade down value of the region had been somewhat reduced. Consequently, although house price growth and turnover improved in 2007, the recovery in lot production was more moderate in 2007/08.
 
Lot production has again weakened in 2008/09 and 2009/10, with the Sunshine Coast market being impacted by both weaker purchaser demand from reduced interstate migration, and the constraints on funding due to the GFC.
 
Growth in new housing activity and lot production is expected to be minimal in 2010/11, before rising more rapidly over the following two years. The recovery in the Queensland economy in this period should underpin greater residential turnover in Brisbane, while the residential upturn in Sydney is also expected to gain momentum. This will again encourage empty nesters to sell up and migrate to the Sunshine Coast, with lot production forecast to peak at 3,100 lots in 2013/14.
 
Melbourne
 
Lot production in Melbourne’s outer suburbs peaked at 18,600 lots in 2008/09 and is estimated to have remained close to this level in 2009/10. New housing demand in Melbourne has benefited from record levels of population growth stemming from a peak in net overseas migration inflows and a net inflow from interstate migration. Together with relatively solid local economic conditions through the GFC, this has fuelled a high level of new housing activity.
 
“Sydney and Brisbane have also experienced similar strong population growth on the back of record levels of net overseas migration inflows but have not experienced anywhere near the level of housing activity of that in Melbourne,” says Zigomanis. “The key difference has been Melbourne’s more affordable land prices, which are lower than the other eastern state capitals. This has made new housing more affordable, which has in turn encouraged greater demand for new dwellings instead of established stock.”
 
With new house and lot production already running at record levels, there is little scope for activity to increase further, despite the accelerating economic conditions. Solid underlying demand, together with some lingering dwelling deficiency, will keep new lot activity high – at around 18,000 lots per annum – before higher interest rates in 2012/13 slow demand in the subsequent two years. BIS Shrapnel says that while this represents a healthy outlook, some downside to these numbers could emerge if lot price growth becomes too strong and reduces the affordability of new housing.
 
Adelaide
 
In line with the improvement in residential construction activity, lot production in outer Adelaide has increased from around 3,000 lots in 2004/05, to an average of nearly 4,000 lots per annum over 2008/09 and 2009/10. This increase has been underpinned by strengthening underlying demand in the Adelaide market due to significant increases in overseas migration inflows.
 
Continued solid economic growth and underlying demand should maintain similar lot production levels through to 2012/13. The high level of dwelling activity that has been seen in recent years means the market is close to balance and BIS Shrapnel expects activity to begin to turn in 2012/13 as interest rates approach their forecast peak. Should the peak in interest rates come through earlier, or land prices show a substantial increase beyond the moderate level expected, then the tip in the affordability equation could bring the downturn through earlier.
 

Bookmark and Share

Comment from yogesh on Thursday, 07th July 2016

Exceptional best requires this is the reason vital data reports you could have particularly masterminded distinctive individuals.  dji italia

Comment from michaelmaloney on Monday, 21st March 2016

We've come such a long way that this article in storage becomes applicable again. We are really heading back into the downturn now!

Michael Maloney: Selfstorage Gold Coast

 

Comment from sana on Friday, 18th March 2016

Benefit anybody in terms of a different needed statement. Utilizing a large number of might any kind of physique purchase linked to which regulators hold difficulties of their widespread comprehensive some sort of function concerning starting? At present we've got the unique based medially minimal 7 days, along with We've been searching for since you example difficulties. diamond engagement rings

Search for services

Find tradesman or property services in your local area.

Search for services