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LET ’ S NOT FORGET ABOUT THE RENOVATIONS SECTOR
It has been a busy time since I had the pleasure of speaking at the AusFenEx16 conference on the Gold Coast back in late August .
HIA Economics and our consultancy arm , Australian Construction Insights , have released a considerable amount of information over the last two months . This includes the annual HIA-Colorbond Steel Housing 100 and the HIA-Cordell Construction 100 , released at the annual Construction Outlook Breakfast series we run every year ( some of you were at these industry-leading events in the third week of September ).
It is still a great story for residential building and the promise for non-residential construction opportunities is firmly on the rise – pretty much what I said two months ago .
I did mention during my recent presentation that Australia ’ s renovations market was worth a look , in addition to new home construction and non-residential building .
That certainly remains the case .
HARLEY DALE
Chief Economist HIA Economics &
Australian Construction Insights
The latest HIA Renovations Roundup was released in early October . The most comprehensive account of renovations activity available in Australia , this report provides market-leading insights and analysis into latest developments in Australia ’ s home renovations market - which was worth over $ 30 billion during the 2015 / 16 financial year . The Renovations Roundup is the only regular comprehensive review of renovations market activity and includes the results of the HIA ’ s unique quarterly renovations market survey of home renovators operating the length and breadth of Australia .
The renovations market is an unusual beast in many respects . While Australia is currently enjoying its largest and longest upturn in new home building activity ( involving over four years of growth which took new dwelling starts to over 230,000 per year ), the renovations market wilted for a twoyear period between 2011 and 2013 , before embarking on a hesitant recovery . The divergence of new home building on the one hand and renovations activity on the other highlights the fact that these two segments of residential building may respond differently to changes in the operating environment . The experience of the past five years suggests that new home building responds much more quickly to interest rate reductions than renovations demand .
More positive trends do seem to be finally emerging on the renovations side . Official data for the June 2016 quarter indicate that the pace of recovery in the renovations market is accelerating . The volume of activity rose by 3.5 per cent during the June 2016 quarter , equivalent to an increase of 4.4 per cent on the same period 12 months earlier . This represented the second consecutive quarterly increase and the fastest pace of growth since the first quarter of last year . Hardly a poor result ! During the year to June 2016 , renovations activity is estimated to have totalled some $ 30.93 billion in value , which is 4.6 per cent higher than during the previous year .
The future course of renovations activity will be shaped by quite a mix of factors . The origins of the increasingly robust recovery can be traced back to the acceleration of dwelling price growth in key markets like Sydney and Melbourne over the last few years . Higher dwelling prices have allowed some homeowners to finance larger renovation jobs through the use of relatively low cost home equity loans , which have helped boost activity - particularly with interest rates at such low levels . Strong growth in dwelling prices in some markets has also had the effect of bolstering household confidence , making them more comfortable in engaging in large big-ticket expenditures like major renovations work . Another phenomenon which is affecting the Sydney and Melbourne markets is that higher dwelling prices have made the cost of moving home too prohibitive for some households and resulted in those same households initiating major renovations works instead . The healthy labour markets in both cities , particularly Melbourne , have also been instrumental in bringing about improved renovations market conditions . Against this backdrop , there are opportunities to be had in the larger renovations arena ( i . e . major structural renovations ) in 2017 .
There is always a ‘ but ’ for economists . A big challenge confronting the renovations market in all states and territories is the significant shrinkage in residential property market turnover over the past year . For example , the number of transactions in Australia ’ s established houses fell by 17.8 per cent over the year to June 2016 . This matters because the new owners of older houses tend to initiate renovations work reasonably quickly after purchasing . The big decline in market turnover during the past year is suppressing demand for larger renovations .
Renovations activity increased by 4.7 per cent in 2015 , the strongest calendar year performance since 2010 . In 2016 , the HIA projects that activity will grow by 3.0 per cent , with the pace of expansion slowing to 1.4 per cent in 2017 . Growth is expected to pick up to 2.4 per cent in 2018 with a further 2.4 per cent increase forecast for 2019 . Overall , the volume of renovations activity is anticipated to increase from $ 31.38 billion in 2016 to $ 33.37 billion in 2019 , an overall expansion of 6.3 per cent . As we move into the 2020s decade , renovations activity is going to be helped all the time by the steady increase in the number of detached houses of prime age for their first major renovations job , a point I mentioned in my presentation in August . This is likely to place a floor under the demand for renovations activity over this period .
The HIA Renovations Roundup report is published quarterly . For further details , visit hia . com . au / BusinessInfo / economicInfo / EcoPublications . aspx
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