1. The Outlook for the Economy and Housing In Australia Ben Phillips Assistant Director – Industry and Policy, HIA April 2008

2. No it isn’t! The surge in world growth is over, however, and blame America because the trouble goes back to the sub prime mortgage crisis. Everybody has an opinion yet nobody knows … … but Australia and East Asia (excl. Japan) should hold up reasonably well. The U.S. is probably in/close to recession and a weak America will generate uncertainty about the global outlook for some time to come. The World Economy – is it falling apart?

3. Where Australia’s Exports go? US only 6% share of export market, North Asia > 50%! Most growth in China, India and Korea (26%, 37%, 11%) during 06/07. Outlook remains very strong in 2008 for Asian countries – being influenced mainly by domestic demand/development – “decoupling theory”.

4. The Economic Backdrop for Australia

5. Australia’s Economy – picking up steam but for how long? Australia is still growing very strongly and the resources boom is the basis for this growth. In the December 2007 quarter GDP grew at 3.9 per cent. For the entire year growth was also 3.9 per cent, the fastest pace since 2002. In FY terms, growth will be strong in 2007/08 but a slowdown is likely in 2008/09 and it may be quite a significant slowdown as rates and the US economy impacts filter through.

6. State Economies – vast differences Resource rich states still enjoy the fastest growth. NSW and Victoria caught up in 2007 because of the resources boom, and also because of private and public business investment. The story won’t really change in 2008.

7. We have had 12 interest rate rises since May 2002. The August ’07 – March ’08 period has been particularly savage. Rates have risen about 1.4 percentage points. We may be at the peak, but it’s not a foregone conclusion. We will probably have one hike too many, but which one? If strong inflation figures yesterday continue on to the June quarter (released July 23) the RBA will be more likely to move. … the (domestic) interest rate world is now ugly

8. Consumer confidence has been battered in 2008 …

9. … as has home-buying confidence

10. The labour market in Australia – still looking good

11. New Housing

12. National building approvals – another claytons recovery?

13. Australia’s population – dominated by record immigration

14. Components of Growth by State Natural Increase OS Migration Interstate Migration Total NSW44,60053,500-26,70071,400 VIC32,00048,200-2,10078,100 QLD30,00033,70027,00090,700 WA17,00027,4004,20048,600  Natural increase and OS migration are roughly in line with state population shares, State population change story is driven by those moving from NSW over the Tweed into QLD.  WA also punching above its weight on OS and interstate migration thanks to resources boom.

15. Housing Starts Forecasts

16. The Renovations Market

17. Renovations – going ok, not as strong as 2002/03.

18. Renovations Forecasts

19. Other Issues

20. House Prices – unsustainable growth

21. House Prices – a narrowing of the gap with Sydney

22. Housing Affordability at record lows

23. First Home Buyers – a stagnant year ahead?

24. Investor Lending – holding up better than most, although rates a new concern.

25. The Rental Market – a dire lack of new stock The real casualty of the current housing squeeze Public housing supply has all but disappeared Vacancy rates are at crucially ‘tight’ levels … … and rents keep creeping up

26. Trade Prices – persistent upward pressure

27. Trade Availability – still very tight

28. The Medium Term Outlook

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. National Rental Affordability Scheme (NARS) Initially involves an investment of $1.2B 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 100,000 new affordable rental properties over the next 10 years throughout Australia by providing private investors with tax credits of $6,000 a year for 10 years for properties that are rented at 20 per cent below the prevailing market. National Housing Policies The Supply side: the tight rental market

31. Home Super Saver Accounts Has as its basis the HIA Home Super Saver Scheme Announced by Federal Treasurer last month 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

32. Housing Representation The Hon Jenny Macklin (Cabinet) and The Hon Tanya Plibersek will each have housing as a Ministerial responsibility Resembling the U.K model, the Government will establish a National Housing Supply Research Council and will publish an annual State of Supply Report to analyse the adequacy of construction and land supply National Housing Policies A greater recognition?

33. Investment in Training Facilities The Federal Government has announced an intention to transfer existing Australian Technical Colleges to State and Territory Governments An investment of $2.5 billion in capital funding over the next decade to build new trade centres in Australia’s 2,650 secondary schools There is a strong basis for this – the successful HIA Youthbuild program National Housing Policies The Labour element

34. The world economy will slow but it won’t fall over. Economic growth in Australia is likely to slow in 2008/09. Strong Asian economies, population growth and investment to shield the economy from a struggling world (ex-Asia) economy. Housing starts face a challenging environment 2008/09 with high rates and low affordability. We should experience further growth in the renovations market. There is no quick fix for tight rental markets and very low housing affordability, but there is a greater cause for optimism. Some points to take away

35. Ben Phillips Assistant Director – Industry and Policy, HIA April 2008 http://economics.hia.asn.au