1. Australian Housing and Renovation Markets Ben Phillips Assistant Director – Industry August 2008

2. Likelihood that rates will drop by 50 – 75 basis points over the next 12 months. Rates are still rising while the RBA sits on its hands. RBA is now more concerned by the slowing economy than continued high CPI readings. RBA probably over-cooked the rates hikes earlier this year given that banks have increased independently. The domestic interest rate outlook is still very uncertain

3. In mid 2008 the sub-prime mortgage crisis has fed (predictably) into:- Renewed weakness in equity markets Credit rationing (and the RBA is very worried about this) Retail lending rates rising again in July AND … … an imminent rate cut Materials/commodity prices have risen substantially, in particular steel and oil HIA calculations made in April found that a 40% increase in the price of steel would add $2,800 to a timber framed/tiled roof single storey home and $6,200 to a steel frame/steel roof home. Exports and economy being propped up by strong Asia. The global economy and Australia

4. Where are we in 2008/09? Economic growth is slowing sharply and will end this year at around 2 per cent. At a national level new home construction is heading for an unprecedented 5 years of flat to weaker results. The renovations market is resilient but not booming. New residential investment is all but dead. House Prices are largely flat. Interest rates have only just stopped rising. Housing affordability is at record lows. Australia is still growing – now in its 17 th straight year of expansion.

5. Consumer confidence is getting battered …

6. Home-buying confidence probably has further to fall

7. … the labour market story is nothing short of exceptional

8. State Economies still have widely differing growth rates

9. Australia’s Economy – slowing down

10. The business investment sector – strong

11. Retail Growth is slowing

12. The Housing Industry

13. Sector 1: New home building

15. Sector 2: Renovations and Additions Total renovations spending grew last year while new home building was flat

16. Sector 3: The Established Real Estate Market We won’t see a repeat of the strong house price growth of 2007 but … … talk of a house price crash is wide of the mark

17. Median House Prices

18. Sector 4: The Rental Market The biggest casualty of the current housing squeeze Public housing supply has all but disappeared Vacancy rates are at crucially tight levels

19. State by State

20. New South Wales Facing the toughest housing conditions in Australia thanks largely to Sydney New housing is a disaster – fewer than 30,000 home starts, typical land price at over $250,000, total new house and land at $520,000. Some regional areas are faring much better again Housing shortage blown out to 18,000 pa. Victoria The goldilocks state – not too hot and not too cold Strong employment growth and a robust economy New housing has greater potential than NSW and Qld due to relative affordability and generous FHB stamp duty discounts. Housing shortage around 6,000 pa.

21. Queensland The land of opportunity but it missed the bus in 2005, 2006 … … but catching up now A huge infrastructure spend will turn things around Rapid escalation in land prices through chronic shortages – has stabilised recently at $165,000 … Housing has been hit very hard this year, shortage to approach12,000 pa. South Australia Favourable affordability and a boost to population growth through migration Land is readily available although it’s been rising in price - $130,000 Wine and Mitsubishi have been a problem but the state has managed these problems reasonably well The kick from resources will be very large

22. Western Australia Oh dear…! With growth comes growing pains – no land, no labour, no housing Inflation in the west is more than 1.5 times that of eastern states while it has the second least affordable housing market of the states. Land prices have escalated to as much as $276,000 per block There is, however, a large amount of work in the pipeline and the aggregate economy is still booming Housing shortage to blow out to nearly 10,000 by 2008/09.

23. Trades and Building

24. Trade Prices and Availability Trades are still in short supply and that means significant upward pressure on contractor rates.

25. Trade Prices and Availability

26. The Built Form – House Size For housing, affordability and energy concerns has seen house sizes ease of late

27. The Future

28. National Rental Affordability Scheme (NARS) Initially involves an investment of $623m by the Government to private investors and is aimed at increasing the supply of residential dwellings for those on Commonwealth Rent Assistance Expected to create 50,000 new affordable rental properties over the next 5 years throughout Australia by providing private investors with tax credits of $6,000 (+$2000 from the States) a year for 10 years for properties that are rented at 20 per cent below the prevailing market. Possible extension to funding for a further 50,000 dwellings from 2011/12 depending on success of scheme. National Housing Policies The Supply side: the tight rental market

29. Investment in Residential Infrastructure (Housing Affordability Fund) Close to HIA’s suggested Residential Infrastructure Fund $500m competitive grant scheme to reduce state and local government infrastructure charges on new developments Under the plan local governments will apply for funding via a competitive process for grants to cover part of the cost of infrastructure to support new residential development Expected to reduce the price of serviceable land National Housing Policies The Supply side: Infrastructure provision

30. Home Super Saver Accounts Based on HIA Home Super Saver Scheme Announced by Federal Treasurer earlier this year Savings of up to $5,000 per year will be eligible for a government contribution (minimum of 15%) paid directly into the Home Super Saver Account. Account earnings taxed at statutory tax rate of 15%. The minimum saving period is four years with individual contributions of at least $1,000 in each of the years. National Housing Policies The ‘Demand’ side: a savings vehicle

31. Housing Forecasts

32. Renovation Forecasts

33. The world economy will slow but it won’t fall over. Economic growth in Australia is likely to slow significantly in 2008/09. The divide between the housing ‘haves’ and the housing ‘have nots’ will be with us for some time. Housing starts will go backwards in 2008/09 down 6% – QLD, WA, VIC hit hard! The renovations sector is looking a little healthier again. Lower interest rate environment will boost housing, but this will be more a 2009/10 story. Strong underlying demand for housing means the long term prospects for the industry remain positive. Some points to take away

34. Ben Phillips Assistant Director – Industry Aug 2008 http://economics.hia.asn.au