HIA report predicts housing starts to fall 14% in 2011

New housing starts are expected to fall by 13% between 2010 and 2012 according to new figures from the Housing Industry Association, with lower demand and planning regulations set to stifle new building developments for some time to come.

The figures come after another weak outcome for the property market during the weekend, with clearance rates still in the 50s in Sydney and Melbourne as demand wanes.

The HIA National Outlook reveals housing starts are expected to drop by 13% in the two years to 2012, with chief economist Harley Dale saying starts will fall to 143,770, the weakest point since the mid-1990s.

On a calendar year basis, starts are expected to fall 14% this year to 145,640, with total investment in renovations expected to fall by 1%.

“There are a few things to note here and one of these is that the 2009-10 base figure was elevated to some extent due to the stimulus measures to combat the financial crisis,” Dale said. “The aggregate 13% decline is occurring from a base that in our historical experience is quite high.

“But that having been said you would think that we would be bottoming out in the 150s rather than the 140s in the current environment.”

That environment is one of higher interest rates and low consumer sentiment, and Dale says the industry is “being crunched from two ends at once”.

The HIA report points out that “the RBA continues to send mixed messages about the urgency or otherwise for more interest rate hikes”.

As a result the HIA expects two more hikes before the end of the year and many economists expect the first to occur tomorrow or at the August board meeting.

Another element is the “underwhelming” economic growth recorded in late 2010 and early 2011.

HIA says the economy is sound but not strong and that it will continue to be uneven because each sector performs differently.

“There is no question that demand is softer and that’s partly due to higher interest rates and the fear of future rate hikes,” Dale says.

“Households are also more cautious but I think the additional gap reflects the fact that finance is difficult to come by for some residential developments.”

Particularly in Melbourne, where apartment construction is on the rise, developers have been forced to abandon projects after buyers have paid deposits due to a lack of finance, with zoning regulations and failed permits often stopping projects from going ahead.

Dale says those types of constraints, including higher taxes, make new developments more difficult than necessary.

“There are still plenty of problems out there with regard to planning and so on,” he says. “There is a lot of taxation on new housing that makes the cost of building very high and all those supply side constraints are firmly in play.

“All the leading indicators are pretty compelling in providing evidence of a down cycle. It’s a disproportionate amount of pressure on SMEs as well, because in many industries they are the lifeblood of new housing.”

Dale wants more government support, saying it will help to bolster the industry and improve confidence. Already support is being granted to first home owners in Queensland, who are set to receive $10,000 for purchasing new dwellings.

“There are now grounds for support to new home building. This type of support was high on the agenda, but seems to have slipped now,” Dale says.

Figures from the Real Estate Institute of Victoria reveal that the auction market recorded another poor weekend, with only 419 homes auctioned and a clearance rate of 55%.

In Sydney only 116 properties were reported sold with a clearance rate of 57.1% while Adelaide and Brisbane recorded clearance rates of 38.9% and 31.3% respectively.