Australia’s building sector is not recovering fast enough to replace mining as the country’s source of growth, according to an economic forecast.
BIS Shrapnel’s Building in Australia 2013 report reveals that the pace will be uncomfortably slow and not all states will benefit.
“We’re in for a real nail biter,” says Dr Kim Hawtrey, associate director of BIS Shrapnel. “We see an upswing in building but it will be uneven and slower to get going than usual. The next 12 months will be a critical test of how quickly the construction sector can take on more of the heavy lifting, and the Australian economy will remain balanced on a knife edge.”
Building, especially home construction is not responding to low interest rates as expected.
“Home building has been punching below its weight and normally low mortgage rates would be stimulating the sector toward clear recovery by now. But the antibiotics are taking longer to work this time around,” Dr Hawtrey said. “High household debt, concerns about the global economy, planning restrictions in some states and lack of land supply are among the factors that explain this new phenomenon.”
Demographic changes were also at work. While the population was growing, generational changes did not necessarily translate into demand for new housing.
“Baby boomers, once the drivers of home construction, are now putting a brake on building as their numbers outweigh younger generations. For their part, young people are discouraged by affordability barriers and changes to first home buyer grants,” she said.
The report predicts little overall growth for the next year, with gains in some areas matching losses in others.
New South Wales, Queensland and Western Australia will have improved residential markets as population growth and stronger economies will see home building respond to rising stock deficiencies.
Drivers in the recovery include demand to upgrade or downsize and strong investor demand, particularly international buyers. First home buyers will take longer to join in due to changes to grants.
On the other hand, Victoria and other southern states will see a contraction, as they are generally in oversupply.
As a result, the immediate outlook for the number of dwelling commencements is mixed and is forecast to fall by two per cent in the next year.