Similar Dilemma: Australia Also Struggles to Revive Housing Market

September 26th, 2011 by DWM Magazine

In between conference sessions Ausfenex attendees networked during morning and afternoon tea.

“In 2011 we find ourselves in a rather unfortunate situation.” That was the opening sentiment of Harley Dale, chief economist with the Housing Industry Association, during his Australian economic report, which he gave last Friday morning during Ausfenex, the joint conference of the Australian Window Association (AWA) and the Australian Glass & Glazing Association (AGGA). Much like in the United States, Dale said the Australian housing industry is not doing nearly as well on the new home building side as they’d like, though the renovation side is growing reasonably well.

“It’s important to not lose sight that there is enormous potential for the new home building side,” said Dale. “Now is a good time to build in Australia and we’re working hard to get that message out there.” Some of the reasons include stable interest rates “and the availability of skilled labor is a bit better than in healthy times,” he said. Dale added, though, that “it’s a bit like the more things change the more things stay the same,” noting that, like much of the world, Australia can’t seem to escape the aftermath of the global financial crisis.

“The reality is, economic and housing conditions in Australia have deteriorated in 2011 so there is a lot of uncertainly in the short term,” Dale said.

But what’s led to this deterioration? Some relates to what’s going on overseas, including the “enormous debt” of the United States.

“Plus we have Europe, which is equally concerning as many countries there also have very high debt,” he added.

Other concerns, he pointed out, include low consumer confidence in Australia, which has people “holding onto their wallets tighter,” as well as interest rate uncertainty. “Now we’re in a situation where there seems to be a clear message that interest rates are on hold, probably into 2012,” he said.

Another challenge has been the potential for the enactment and implications of a carbon tax, which has been proposed in Australia.

“Regardless of where you sit, the debate itself has harmed economic confidence and economic activity. It’s been a negative for consumer confidence,” he said.

Taking a closer look at the housing market, Dale said the outlook for new home building in the long term is very strong, though not as much in the short term.

“At the moment we’re not building enough,” he said.

According to Dale, housing starts in Australia fell by 4.7 percent in the June 2011 quarter to an annual rate of around 151,000.

“We need to get [that number] higher because the potential is enormous,” Dale said, pointing to the rate at which Australia’s population is growing and how many homes are demolished each year. “We need to build about 175,000 homes a year when what we actually build is about 141,000 year. We could do a lot better if state, local and federal governments wake up to what they need to do … we could get to 160,000 relatively quickly if the policy was in place.”

Looking ahead to the next five to ten years, Dale expects the new home building market will pick back up, “but [the next] 12 months will be a tough ride.”

He said the growth right now is in the renovation market.

“People are increasing the amount they are spending on major renovations,” said Dale.

So where does all this leave the Australian economy? Dale said consumer confidence is low and that needs to increase.

“There is a lot of work to be done, but we have a lot of evidence to take to the table to try and get that kick-started,” Dale said, noting that there is an upcoming tax forum, which will hopefully be a good start.

“It’s a difficult environment for new home building, but the potential is there,” he added.

The Ausfenex conference concluded last Friday. Look to the November/December issue of DWM magazine for more news from the event.

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