ECONOMY | EDITORIAL

TIM REARDON

Principal Economist , Housing Industry Association

The Report concludes that New South Wales continues to outperform Victoria with the best building conditions in Australia . Across the country , the east coast dominated the top rankings with conditions deteriorating the further west you look .

Buoyed by strong population growth , New South Wales and Victoria have held the top spots for two years . Each experiencing strong house price rises and growing demand for more affordable housing options leading to the apartment boom .

The slowdown in apartment construction in New South Wales provides us with every reason to expect that Victoria , which has had fewer apartments in the pipeline , may take over the top spot in 2018 . The record number of apartments in New South Wales may take some time to clear the market . As a consequence , there could be a gap in multi-unit construction until the current suite of apartments , particularly in central Sydney , are sold .

Victoria ’ s high level of building activity is explained with the release of the 2016 Census data . It included a recalculation of the Australian population , which increased by 87,000 people compared to the earlier population forecast . This population increase is not evenly distributed across the country .

Victoria ’ s population estimate was revised up 1.8 per cent . In effect , an extra 110,000 people went looking for somewhere to live in Victoria in the past four years . That is the equivalent of an extra years ’ worth of home building just to house the increase in migration . Victoria ’ s population increased by 2.4 per cent per year since the last Census as it received a large net inflow of migrants from other states and a strong contribution from overseas migration .

Queensland remains solid in third spot . The home price growth cycle in Queensland has not delivered the same hefty growth as the states to the south . The Australian Capital Territory performed strongly off the back of the New South Wales economy and local government spending , and Tasmania shot ahead of the western states .

And this is where the good news ends as we look at the bottom three states for building activity .

South Australia slipped down the ladder from fourth to sixth and is perhaps the most concerning , performing below average across almost all metrics . A low volume of houses under construction and low investment in construction provide a difficult outlook for the state . The only light is sustained activity in the renovations market .

The problems in this market appear to be more structural . Unemployment in South Australia is high by national standards . Investment in construction is at low levels and the outlook is that it will remain flat . Its manufacturing sector has been adversely affected by the closure of large employers . Confidence has been affected by rising energy costs and unreliable supply . Population growth has fallen to its lowest level for more than a decade ( 0.6 per cent ). Building activity in March 2017 was 24.2 per cent lower than in the same quarter of 2016 . Rental price inflation is approaching zero .

CHANGE IN STATE SCORE

CHANGE IN RANK

MARKET MOMENTUM *

1 NSW 94 – 3 Unchanged > 2 VIC 85 – 2 Unchanged > 3 QLD 65 – 7 Unchanged Down 4 ACT 64 – 3 Up 1 > 5 TAS 63 17 Up 3 Up 6 SA 58 2 Down 2 > 7 WA 38 5 Down 1 Up 8 NT 37 – 9 Down 1 Down

* A decline in a state score of more than five is considered to be indicative of declining momentum , an increase of more than five is considered positive momentum and any positive or negative movement of less than five is considered neutral .

It appears that South Australia will be at the bottom end of the ladder for some time yet .

Although Western Australia and the Northern Territory are further down the list , the issues in these economies are clearly of a cyclical nature . With the investment phase in the resources sector over , these states are reaching a new equilibrium .

Underlying the poor levels of building activity in Western Australia is a solid economy which will continue to benefit from the export opportunities presented by the lower Australian dollar . Rising commodity prices , such as iron ore , will also earn valuable income for the state . Garnish this with record demand for agricultural product , due to unprecedented demand from Asia , and the economy looks set to improve and residential building will benefit . The March quarter 2017 Building Activity shows an increase of 4.1 per cent , one of only two states to record an increase in this quarter . At the very least , this looks like the point of inflexion on the curve for the Western Australian economy and we should not expect the state to spend long at the bottom of the HIA Scorecard .

The problems in the Northern Territory building industry are also of a cyclical nature . Devastating for the local building industry while they last , these challenging times are not yet over , but they will pass .

WINDOWS MAGAZINE 17