2014 Plumbing Supply Forum
Sydney
Dr Harley Dale, HIA Chief Economist
27 May 2014
The Global Economy is Marching Back
IMF Economic Growth Forecasts (April 2014)
2013
2014f
2015f
World
3.0
3.6
3.9
Australia
2.4
2.6
2.7
United States
1.9
2.8
3.0
China
7.7
7.5
7.3
Euro Area
-0.5
1.2
1.5
UK
1.8
2.9
2.5
Japan
1.5
1.4
1.0
India
4.4
5.4
6.4
The Domestic Economic Backdrop
– it’s all about housing
Qtrly
Annual
Dec-13
Dec-12
Dec-11
Dec-10
Dec-09
Dec-08
Dec-07
Dec-06
Dec-05
Dec-04
Dec-03
Dec-02
Dec-01
Dec-00
Dec-99
Dec-98
Dec-97
Dec-96
Dec-95
Dec-94
Dec-93
Dec-92
Dec-91
Dec-90
% change
Economic growth is slowly picking up …
Gross Domestic Product
Source: ABS 5206
6.0
5.0
4.0
3.0
2.0
1.0
0.0
-1.0
-2.0
-3.0
… unemployment is a key unknown
Australia's Unemployment Rate
Source: ABS Labour Force
11.0
10.0
9.0
20 Year Average Unemployment Rate
7.0
6.0
5.0
5 Year Average Unemployment Rate
4.0
Apr-14
Apr-13
Apr-12
Apr-11
Apr-10
Apr-09
Apr-08
Apr-07
Apr-06
Apr-05
Apr-04
Apr-03
Apr-02
Apr-01
Apr-00
Apr-99
Apr-98
Apr-97
Apr-96
Apr-95
3.0
Apr-94
Per cent
8.0
New housing is the key
Total Dwelling Starts – Australia
Source: ABS 8752
50,000
Number
45,000
40,000
35,000
30,000
Seasonally Adjusted
•
•
Trend
In 2013 Australia started 168,000 new dwellings, an increase of 11%.
HIA’s forecast was for 8% growth to 164,400.
Dec-13
Dec-12
Dec-11
Dec-10
Dec-09
Dec-08
Dec-07
Dec-06
Dec-05
Dec-04
Dec-03
Dec-02
Dec-01
Dec-00
Dec-99
Dec-98
Dec-97
Dec-96
Dec-95
Dec-94
Dec-93
25,000
What is going to happen to interest rates?
Interest Rates, Australia
Source: HIA Economics, RBA
11.00
2.80
10.00
2.70
2.60
8.00
2.50
7.00
2.40
6.00
2.30
5.00
2.20
4.00
3.00
2.10
2.00
2.00
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14
May-14
% Interest Rate
9.00
Mortgage Rate Margin to Cash Rate (RHS)
Discounted Variable Mortgage Rate
RBA Cash Rate
Small Business Variable Term Loan
What does the budget mean for us?
• There is no denying that this is a ‘tight’ budget, but what
does that mean?
• “There will be some negative impact on economic growth.
The budget relies heavily on spending cuts to achieve its
targets. Consumer confidence will almost certainly be
damaged by this budget.” Harley Dale, 14/5/14
• The question is what happens to real activity in 2014/15?
• There are three keys:– Residential construction
– Business investment
– Budget is only part of the process
The latest fiscal battle is only the beginning
State Budget aggregates for 2013/14
2013/14
NSW
VIC
QLD
SA
WA
TAS
NT
ACT
Total
2013/14
2013/14
2013/14
$bn
$bn
$bn
$bn
Total Taxation
Revenue
Stamp Duty
Payroll Tax
Land Tax
23.5
16.5
11.9
4.2
9.2
0.9
0.5
1.3
67.9
6.7
3.7
2.0
0.8
1.9
0.1
0.1
0.2
15.6
7.3
5.1
4.1
1.2
3.7
0.3
0.2
0.3
22.3
2.5
1.6
1.0
0.6
0.7
0.1
0.1
6.5
Based on Budget 2013/14 papers for each state
The latest fiscal battle is only the beginning
State Budget aggregates for 2013/14
2013/14
2013/14
2013/14
2013/14
2013/14
$bn
$bn
$bn
$bn
Health
Expenditure
Education
Expenditure
17.8
14.0
12.3
5.1
7.2
1.4
1.3
1.3
60.4
13.6
14.0
11.4
4.1
4.4
1.3
1.0
1.0
50.8
NSW
VIC
QLD
SA
WA
TAS
NT
ACT
Total
$bn
Operating
Balance
Total Revenue*
-1.9
0.2
-3.8
-0.9
0.4
-0.3
-0.2
-0.3
-6.7
62.6
50.3
44.7
15.3
28.0
4.8
5.5
4.2
215.4
Total Health &
Education
Expenditure
31.4
27.9
23.7
9.2
11.6
2.7
2.2
2.3
111.2
Based on Budget 2013/14 papers for each state
*Total revenue comprises Tax Revenue plus royalties, sales of goods/services, fines and Commonwealth grants
What does all this mean for consumer
confidence?
Consumer Confidence
Source: Westpac-Melbourne Institute
125
120
115
110
Index
105
100
95
90
85
80
75
May-96
May-98
May-00
May-02
May-04
May-06
May-08
May-10
May-12
May-14
The new home building recovery – how far
and wide can it run?
What do we make of the new housing recovery?
HIA forecasts for the NSW recovery
Source: ABS Building Activity, HIA Economics
50
'000 dwellings commenced
45
40
35
30
25
20
15
10
2004
2005
2006
ACTUAL STARTS
2007
2008
2009
Average of forecasts
2010
2011
2012
Forecast as at Feb 2013
2013
What lies ahead?
Comparison of New Dwelling Starts in 2013 with other indicators
Thousands of New Dwelling Commencements
195
192.0
190
187.1
185
181.4
178.9
180
179.5
179.1
175
170
167.8
165
160
155
CY 2013
2013 Q4 Annualised
CY 1994
Year to Sep 2010
Implied approvals (yt Implied approvals (last
Mar 2014)
6 mths)
HIA forecast
Source: ABS
•
•
The highest number of starts was over 187,000 in 1994.
Building approvals imply 181,000; 6mth annualised approvals imply 192,000
The changing composition of new housing
Dwelling Approvals by Type - Australia
Source: HIA Economics, ABS
200000
180000
160000
Dwellings Approved
140000
120000
100000
80000
60000
40000
20000
Detached houses
•
•
Semi-detached/row/terrace houses
Flats/units/apartments in blocks of up to two storeys
Dec-13
Dec-12
Dec-11
Dec-10
Dec-09
Dec-08
Dec-07
Dec-06
Dec-05
Dec-04
Dec-03
Dec-02
Dec-01
Dec-00
Dec-99
Dec-98
Dec-97
Dec-96
Dec-95
Dec-94
Dec-93
0
High-rise appartments
In 1993 the detached house share was 73%; in 2013 it was 56%.
In 2013 the breakdown was …
… much different to how it used to be
Dwelling Approvals by Type in 2013 - Australia
Source: HIA Economics, ABS
120,000
56%
100,000
80,000
60,000
26%
40,000
14%
20,000
3%
-
Detached houses
Semi-detached/row/terrace
houses
Flats/units/apartments in blocks
of up to two storeys
High-rise appartments
What is happening in the renovations
market?
Reported in Dec 2013 Qtr
Reported in Sept 2013 Qtr
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
Dec-1993
Dec-1992
Dec-1991
Dec-1990
Dec-1989
Dec-1988
Dec-1987
Dec-1986
Dec-1985
Dec-1984
Revovations Investment (MAT, $ million)
Renovations investment – about to turn?
Australian Renovations Investment - Moving Annual Total
Source: HIA Economics, ABS 5206.0
35,000
33,000
31,000
29,000
27,000
25,000
23,000
21,000
19,000
17,000
15,000
Housing prices suggest the answer is yes
Annual growth in house prices - regional Australia vs capital cities
Source: RP Data and Rismark Simple median price
25%
20%
10%
5%
0%
Regional Houses
Capital City Houses
Apr-14
Oct-13
Apr-13
Oct-12
Apr-12
Oct-11
Apr-11
Oct-10
Apr-10
Oct-09
Apr-09
Oct-08
Apr-08
Oct-07
Apr-07
Oct-06
Apr-06
Oct-05
Apr-05
-10%
Oct-04
-5%
Apr-04
Annual % change
15%
Housing prices are on the rise, but not evenly
House Prices - Regional Australia vs Capital Cities
Source: RP Data and Rismark Simple median price
600,000
550,000
500,000
450,000
400,000
350,000
300,000
250,000
Regional Houses
Capital City Houses
Apr-14
Oct-13
Apr-13
Oct-12
Apr-12
Oct-11
Apr-11
Oct-10
Apr-10
Oct-09
Apr-09
Oct-08
Apr-08
Oct-07
Apr-07
Oct-06
Apr-06
Oct-05
Apr-05
Oct-04
150,000
Apr-04
200,000
Dec-2000
Jun-2001
Dec-2001
Jun-2002
Dec-2002
Jun-2003
Dec-2003
Jun-2004
Dec-2004
Jun-2005
Dec-2005
Jun-2006
Dec-2006
Jun-2007
Dec-2007
Jun-2008
Dec-2008
Jun-2009
Dec-2009
Jun-2010
Dec-2010
Jun-2011
Dec-2011
Jun-2012
Dec-2012
Jun-2013
Dec-2013
Jun-2014
Dec-2014
Jun-2015
Dec-2015
Jun-2016
Dec-2016
Jun-2017
Dec-2017
Jun-2018
Dec-2018
Jun-2019
Dec-2019
Jun-2020
Dec-2020
Jun-2021
Dec-2021
Jun-2022
Dec-2022
Thousands
More housing stock ‘coming of age’
Estimated Number of Houses in 11 to 20 year Age Range - Australia, 2000 to 2022
Source: ABS
1,090
1,080
1,070
1,060
1,050
1,040
1,030
1,020
1,010
1,000
990
The scores around the grounds …
NSW – new housing is finally ripping along
Total Dwelling Starts – New South Wales
Source: ABS 8752
15,000
14,000
13,000
12,000
Number
11,000
10,000
9,000
8,000
7,000
6,000
5,000
Seasonally Adjusted
•
•
•
Trend
New housing starts hit nearly 45,000 last year, the highest in a decade.
Starts are likely to exceed 50,000 in 2014.
There are 11 ‘growth’ regions out of 13.
Dec-13
Dec-12
Dec-11
Dec-10
Dec-09
Dec-08
Dec-07
Dec-06
Dec-05
Dec-04
Dec-03
Dec-02
Dec-01
Dec-00
Dec-99
Dec-98
Dec-97
Dec-96
Dec-95
Dec-94
Dec-93
4,000
NSW – renovations have been awful
Renovations Investment in New South Wales - Moving Annual Total
Source: ABS State Final Demand
11,000
10,500
$ million (moving annual total)
10,000
9,500
9,000
8,500
8,000
7,500
7,000
6,500
• Growth of 5 per cent in 2014, 4 per cent in 2015.
Dec-2013
Dec-2011
Dec.2009
Dec-2007
Dec-2005
Dec-2003
Dec-2001
Dec-1999
Dec-1997
Dec-1995
Dec-1993
Dec-1991
6,000
Victoria – new housing is down but not out
Total Dwelling Starts – Victoria
Source: ABS 8752
18000
16000
14000
Number
12000
10000
8000
6000
Seasonally Adjusted
•
•
•
Trend
New housing starts fell from over 60,000 in 2010 to 47,000 last year.
Starts are likely to hold steady in 2014, but decline further in 2015.
Land sales suggest a turnaround in most regions.
Dec-13
Dec-12
Dec-11
Dec-10
Dec-09
Dec-08
Dec-07
Dec-06
Dec-05
Dec-04
Dec-03
Dec-02
Dec-01
Dec-00
Dec-99
Dec-98
Dec-97
Dec-96
Dec-95
Dec-94
Dec-93
4000
Victoria – renovations top the nation
Renovations investment in Victoria - Moving annual total
Source: ABS State Final Demand
8,000
7,500
$ million (moving annual total)
7,000
6,500
6,000
5,500
5,000
4,500
• Activity to ease by around 2 per cent in 2014 and 2015.
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
4,000
Queensland – new housing on the recovery trail
Total Dwelling Starts – Queensland
Source: ABS 8752
15000
14000
13000
12000
Number
11000
10000
9000
8000
7000
6000
Seasonally Adjusted
•
•
•
Trend
New housing starts went back over 30,000 last year.
Starts are likely to reach around 38,000 in 2014, the highest level since 2008.
Regional markets bottoming out or picking up, except Mackay and Rockhampton.
Dec-13
Dec-12
Dec-11
Dec-10
Dec-09
Dec-08
Dec-07
Dec-06
Dec-05
Dec-04
Dec-03
Dec-02
Dec-01
Dec-00
Dec-99
Dec-98
Dec-97
Dec-96
Dec-95
Dec-94
Dec-93
5000
Queensland renovations bottoming out
Renovations Investment in Queensland - Moving Annual Total
Source: ABS State Final Demand 5206.0
9,000
$ million (moving annual total)
8,000
7,000
6,000
5,000
4,000
• Growth of 5 per cent in 2014, 4 per cent in 2015.
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
Dec-1993
Dec-1992
3,000
A mixed bag for the remaining states
Annual Housing Starts - December 2013 (annualised) qtr vs Decade Average
Source: ABS 8750.0
50%
44%
40%
29%
30%
20%
% change
20%
10%
0%
-10%
-20%
-16%
-30%
-32%
-40%
SA
WA
TAS
NT
ACT
A mixed bag for the remaining states
Renovation Investment 12 months to Dec 2013
Source: ABS National Accounts
15.0%
10.0%
9.8%
% change
5.0%
0.0%
-5.0%
-3.3%
-6.5%
-10.0%
-15.0%
-57%
-20.0%
SA
WA
TAS
ACT
-15.7%
NT
So what else is there?
The future demand for housing
Population in 2012
Fertility
Life expectancy
Migration
Population in 2050
Household Size
Additional Dwellings Required (pa)
Zero
Low
Medium
High
22,721,995
Medium
Medium
Zero
24,816,437
22,721,995
Medium
Medium
Low
35,698,551
22,721,995
Medium
Medium
Medium
37,593,636
22,721,995
Medium
Medium
High
39,486,942
2.59
21,290
2.59
131,905
2.59
151,168
2.59
170,413
Required Annual Build Rate Accounting for Varying Assumptions About Demolitions*
Demolitions 10%
23,419
145,095
166,285
Demolitions 15%
24,483
151,691
173,843
Demolitions 20%
25,548
158,286
181,402
Demolitions 25%
26,612
164,881
188,960
Demolitions 30%
27,677
171,476
196,518
*Percentage refers to the number of new homes which replace a demolished home.
187,455
195,975
204,496
213,017
221,537
Now I don’t mean to ‘bug’ you …
• … but I do get ‘Mad as Hell’ about …
… the lack of housing policy reform
Comparison of Local Authority Rates and Annual Mortgage Repayments Resulting from
Taxation on New House
$20,000
$18,646
$18,000
$16,000
$14,000
$12,487
$11,553
$12,000
$10,649
$10,452
$9,251
$10,000
$8,000
$6,000
$4,000
$2,000
$1,288
$1,223
$2,135
$1,575
$1,448
$1,036
$Townsville
Source: HIA, CIE
Albury
Wodonga
Annual Local Authority Rates
Sydney
Melbourne
Taxation: Annual Mortgage Repayments
Brisbane
Updates from HIA Economics
• Annual Housing and Population Hotspots
• More detailed new housing forecasts
• Demographic analysis by state
• Housing to 2025
• New Renovations report
Thank you for your time
Harley Dale
Chief Economist