A flattening building industry needs governments' support
Nationally the trend estimate for total dwellings approved fell 0.7% in July (the fifth successive monthly fall) and Macks Advisory is informed residential construction in SA will be “continuing flat but at levels of underlying demand”.
Furthermore, according to Master Builders Association national economist Peter Jones, an anticipated recovery in commercial construction hasn’t materialised, so that total building work fell 0.9% in June, the fourth successive monthly decline.
For SA the prediction for commercial construction is “flat in most sectors with capacity under-utilised – large projects masking a downturn”.
Yet the struggling industry’s potential was apparent in August when for the first time in 10 months, the national Performance of Construction Index registered a rise - six points to 53.8, where anything above 50 indicates growth, which in this instance was being underpinned by residential construction.
Indeed, Housing Industry Association (HIA) chief economist Harley Dale says “new housing really has been the king-maker of the domestic Australian economy”.
Which therefore begs the question: why isn’t the Federal Government doing more to support the industry – perhaps with something comparable to the UK’s coordinated Help To Buy deposit scheme, now enabling record breaking numbers of people to own homes?
Support is fragmented
One of the building industry’s major problems is that government support where it exists is fragmented and lacks a collaborative focus. For example first home buyer grants vary in size and conditions from State to State, as do attempts to reduce red tape, disincentives like stamp duty, and regulations in all tiers of government that curb industry growth.
A coordinated national solution is required but it’s unsighted, understandably since serious consideration of one has been unlikely in the disruptive to-ings and fro-ings of five Prime Ministers in five years. There has seemed no alternative but for State and local governments to continue muddling through, attempting to provide support for the building industry on an ad hoc basis.
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In SA, more confusion has been added to the existing muddle by the HIA’s demand that a proposed urban growth boundary for Adelaide be removed from a Bill tabled in State Parliament on 8 September.
Trumpeted as the biggest overhaul of planning systems in more than 25 years, the HIA however claims the legislation’s so-called reforms that include defining a metropolitan boundary, would increase house and land prices and reduce buyer choice.
HIA’s executive director Wayne Matthew says this is the last sort of help the housing industry in SA needs, a squeeze on availability of land, something that would nullify genuine reforms proposed in the legislation.
Minister John Rau insists the government is genuine in its effort to support the industry “by encouraging infill development instead of favouring unsustainable urban sprawl along with perpetuating the myth that allowing sprawl is a way to keep prices down”.
He argues that projections show current infill opportunity and land already zoned, will not only provide for the next 20 years of population growth, but will also “save homeowners and other taxpayers a fortune by placing affordable housing near to work and services”.
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Meanwhile the Federal Government’s attempt to lift productivity and ensure rule of law on building sites with a Bill to restore Australian Building and Construction Commission powers, has been rejected by the Senate.
And the economy’s unhelpful
But irrespective of what governments may or may not do to help the building industry fulfill its potential in the immediate or even foreseeable future, the economy looms as a formidable obstacle to growth.
A winter of discontent was dispelled to some extent by August’s spurt of activity, but BIS Shrapnel expects this to drop away to a lethargic spring as the economy slows.
Furthermore, associate director Kim Hawtrey says that while there’s still a demand for houses, too many apartments are being built, which is not only lowering prices but also discouraging building. It’s a trend already being seen in Adelaide and Perth.
He says that despite the August rise in new houses, apartment supply will decline so much that the result in September will be an overall drop in the construction of new dwellings. Yet its expected building of detached houses will be maintained, at least in the short term – “like the party goer who’s still there after everyone else has fallen by the wayside”.
According to Corelogic RP Data, the over supply of apartments, together with a slowing population growth, have caused rents to drop in every capital city except Sydney. On average, year-on-year growth in rent asked, has dropped nationally since the start of the new financial year from 0.9% to 0.7%, the lowest since records began in December 1966.
So what price a recession?
AMP stopped lending to property investors in August, ING Bank is demanding higher deposits from investors, and some other banks are requiring up to a 100% presale of an apartment block before they’ll lend money on it. According to BIS Shrapnel a clampdown by the Australian Prudential Regulation Authority on investor lending will be felt in mid-2016.
Clearly financiers’ nervousness isn’t helping the building industry.
Looking at the flow of third quarter data, Goldman Sachs’ chief economist Tim Toohey tells us it’s “far from robust”. He says Australia is facing a one-in-three chance of a recession – a technical recession being two consecutive quarters of negative growth.
But here’s the good news: he also believes that should this come to pass, our economy “will quickly return to growth on the back of improving exports led by major LNG gas projects”.
On the night of his election, Prime Minister Malcolm Turnbull said he’d be focusing on the economy and using a consultative approach to better it. That being so, hopefully the government will appreciate, as does the HIA, buildings “king-maker” role in the economy - with the result that some coordinated support for the industry may yet emanate from Canberra.
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For more information, contact Macks Advisory on 08 8231 3323 or visit our office at Level 11, 99 Gawler Place, Adelaide SA 5000.
