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The most comprehensive report card on the residential sector in Victoria highlights a challenging time ahead reflective of sharply higher borrowing costs, labour rates, and building materials prices.
The new home building sector in Victoria looks set to have turned the corner in 2007/08 following four years of decline, but maintaining the recovery will prove a challenge.
Commenting today on the release of the March 2008 quarter HIA Victoria State Outlook publication, HIA Acting Executive Director, Victoria, Mr Robert Harding, said that the reasonable recovery in the new home building cycle in 2007/08 was likely to moderate next financial year.
“Australia is enjoying its 17th year of economic expansion at the same time as the sustained weakness in new home building in Victoria has only recently come to an end,” Mr Harding said.
New dwelling starts fell by 17 per cent over 2003/04 – 2006/07, a historically long downturn. Starts are expected to increase by 8 per cent in 2007/08.
“Despite the emerging recovery we still have a long way to go. The lack of new housing supply is driving up rents and is holding up real estate prices for existing housing stock,” Mr Harding said.
“A considerably slower rate of growth for housing starts in 2008/09 in the face of higher borrowing costs and construction costs won’t help this situation.”
“Right now, the chronic shortage of housing stock is generating a real social problem via a dislocating impact on lower income households. Policies on the table need to translate into activity on building sites, in a matter of months not a matter of years,” said Mr Harding.
On the renovations front the outlook is quite healthy.
“Total investment in renovations is expected to post growth of 9 per cent in 2007/08 to a value just under $7 billion. Renovation activity is forecast to move past this $7 billion mark for the first time in 2008/09,” Mr Harding said.
“In part, the health of the renovations sector is fuelled by astronomical transaction charges on property coupled with taxes and charges on new residential dwellings,” added Mr Harding.
A shortage of housing stock will maintain house prices, although rate hikes will see a cooling in existing house price growth.
“Talk of widespread falls in house prices is way off the mark,” Mr Harding said.
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