The Outlook for Residential Construction in the South West

Dr. Harley Dale HIA Chief Economist HIA South West Industry Update Bunbury December 2012

The most comprehensive housing report card produced in Australia

• •

Spring 2012 edition:-

The global outlook could be worse, but it’s not that good.

Australia is in sound economic shape, but the devil is in the detail.

• • The outlook for WA is indeed impressive, relative to other states (rivalled only by Queensland), though the state has had better.

Residential construction is showing promise.

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HIA WA Outlook, Spring 2012 edition

• “Sentiment towards the global economy has soured … and so the perception is that global economic prospects have weakened.” • The implications for interest rates: • “Against this backdrop, the Reserve Bank of Australia (RBA) cut interest rates by a further 25bps on October 2, taking the Official Cash Rate (OCR) to 3.25 per cent.” • “We’re maintaining our view that 2012/13 will see a decent rebound of 25.1 per cent, followed by a year of consolidation in 2013/14 wherein starts are forecast to grow by a modest 5.0 per cent. This would leave the level of starts in WA at 23,024…” • “… activity in the coming months will be crucial to this view materialising.”

‘We’ll all muddle through’ seems to be the view

WA Economy – looking better than mid year WA ECONOMY INDICATOR UPDATE

Gross State Product Interest rate outlook Household consumption Unemployment Detached houses Multi-units Renovations Improved Improved Mixed Improved/mixed Improved Improved Improved

Economic growth is strong in WA, but…

Annual growth in State Final Demand (% change to September 2012 quarter) Source: HIA Economics Group 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% -5.7% TAS 1.6% VIC 1.8% SA 2.7% QLD 2.9% NSW 5.6% ACT 9.6% WA 28.7% NT

… not everywhere

WA's state final demand - key components September quarter, 2012 Source: ABS National Accounts 40.0% 30.0% 20.0% 10.0% 0.0% -10.0% -20.0% -30.0% -40.0% 5.9% 18.3% Private business investment 1.4% 7.2% Household consumption -10.9% -31.5% New home investment 8.9% -22.2% Renovations investment Qtrly change Annual change

Interest rates back near historic lows

Interest Rates, Australia Source: HIA Economics, RBA 11.00

10.00

9.00

8.00

7.00

6.00

5.00

4.00

3.00

2.00

2.30

2.20

2.10

2.00

2.70

2.60

2.50

2.40

Mortgate Rate Margin to Cash Rate (RHS) Discounted Variable Mortgage Rate RBA Cash Rate Small Business Variable Term Loan • 2012 has seen a total of 125bps of cuts to the official cash rate.

• However, households and businesses have not received all these cuts – there should still be more yet to come…

Hopefully to keep confidence more buoyant

Consumer Confidence Source: Westpac-Melbourne Institute 125 120 115 110 105 100 95 90 85 80 75 Nov-94 Nov-96 Nov-98 Nov-00 Nov-02 Nov-04 Nov-06 Nov-08 Nov-10 Nov-12

The Western Australian Economy

Gross state product: not amazing, but still decent…

Gross State Product - Western Australia Source: ABS 5220.0; Access Economics 8.0

7.0

Long term average 6.0

Forecast 5.0

4.0

3.0

2.0

1.0

0.0

Year ended June

WA’s labour market

Western Australia's Labour Market Source: ABS Labour Force 12.0

11.0

10.0

5.0

4.0

3.0

2.0

9.0

8.0

7.0

6.0

U/e rate (LHS) Annual Employment Growth Rate (RHS) 10.0

8.0

6.0

4.0

2.0

0.0

-2.0

-4.0

Residential construction in WA

Where we’ve come: WA’s housing starts

WA Housing Starts Source: HIA Economics Group 30.00

25.91

24.70

25.09

25.00

22.56

22.91

22.44

18.45

20.00

20.80

17.52

15.00

10.00

5.00

0.00

2003/04 (a) 2004/05 (a) 2005/06 (a) 2006/07 (a) 2007/08 (a) 2008/09 (a) 2009/10 (a) 2010/11 (a) 2011/12 (a)

WA’s alterations and additions

WA Renovations Forecasts Source: HIA Economics Group 6,000 5,000 4,244 4,000 3,515 3,249 3,255 3,078 3,000 3,945 4,536 4,869 4,322 2,000 1,000 0 2003/04 (a) 2004/05 (a) 2005/06 (a) 2006/07 (a) 2007/08 (a) 2008/09 (a) 2009/10 (a) 2010/11 (a) 2011/12 (a)

South West home to Hotspots in 2010/11

WA Building and Population Hotspots**

**SLAs with in excess of $100 million in residential building work approved in 2010/11 and with an annual population growth rate in excess of the national average

Statistical Local Area

1 2 3 4 5 Serpentine-Jarrahdale (S) Armadale (C) Wanneroo (C) - North-East Mandurah (C) Wanneroo (C) - North-West 6 7 8 9 Rockingham (C) Roebourne (S) Cockburn (C) Port Hedland (T) 10 Swan (C) 11 Busselton (S) 12 Gosnells (C) 13 Stirling (C) - Central 14 South Perth (C) 15 Stirling (C) - Coastal 16 Canning (C)

Statistical Divison Residential Building Approved, 2010/11, ($'000)

Perth Perth Perth South West Perth Perth Pilbara Perth Pilbara Perth South West Perth Perth Perth Perth Perth 108,861 206,900 140,809 213,614 235,109 277,445 186,240 280,512 149,502 282,568 146,801 146,107 258,632 128,190 271,663 128,542

Annual Population Growth Rate (%)

6.9

5.4

5.4

2.2

2.1

1.9

1.8

1.6

5.3

4.7

3.7

3.3

2.9

2.9

2.8

2.8

Land sales and prices in the South West

RESIDENTIAL LAND SALES & MEDIAN LOT VALUE - SOUTH WEST 250,000 200,000 150,000 100,000 50,000 0 No. of sales Value • Land sales increased by 10% in the June 2012 qtr; by 17% in 2012H1.

1,600 1,400 600 400 200 0 1,200 1,000 800

WA approvals heading in the right direction…

Building Approvals - WA Source: ABS Building Approvals 3,000 2,500 2,000 1,500 1,000 500 Seasonally adjusted Trend

…and across the Bunbury region

Total dwelling approvals , Bunbury region Source: ABS Building Approvals 3 months to Oct 12 v Oct 11, +3% change 180 160 60 40 20 0 140 120 100 80

Selected South West areas

Total dwelling approvals, selected South West areas - Oct 'qtr' 2012 vs Oct 'qtr 2011 Source: ABS, HIA economics 350 333 300 250 200 219 214 208 159 145 150 100 50 0 Mandurah Augusta - Margaret River Busselton 3 mnths to Oct 11 Bunbury 3 mnths to Oct 12 39 Manjimup 43

House and unit values – tracking sideways?

House and unit prices - Regional WA, November 2012 Source: RP Data and Rismark 3 month rolling simple median 450,000 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 Regional WA Houses Regional WA Units

Mixed performance of prices in the South West

Mandurah Augusta Bussleton Bunbury Manjimup Margaret River Source Australian Property Monitors House Prices: 12 Months to September 2012 Median price $ $ $ $ $ $ 363,000 470,000 415,000 480,000 230,000 425,000 Quarterly growth (%) 5.1

0 -1.2

0 -9.8

-1.2

12 month growth (%) 2.8

2.2

-6.7

1.1

9.8

-2.7

10 year growth (% per annum) 10.8

8.0

9.8

8.6

11.1

6.9

Improvements in WA’s affordability

90.0

80.0

70.0

60.0

50.0

40.0

30.0

S07 D07 M08 J08 S08 D08 M09 J09 S09 D09 M10 J10 S10 D10 M11 J11 S11 D11 M12 J12 S12 PERTH REST OF WA

Total renovations investment: sliding in WA…

Renovations Investment in Western Australia - Moving annual total Source: ABS State Final Demand 5,500 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500

… as in the Bunbury region

Value of major renovations approvals , Bunbury region Source: ABS Building Approvals 3 months to Oct 12 v Oct 11, -8.9% change 6,000 5,000 4,000 3,000 2,000 1,000 -

Alts and adds in selected South West areas

Value of major alts and adds approvals ($'000) - Selected South West areas, Oct 'qtr' 2012 vs Oct 'qtr 2011 Source: ABS, HIA economics 5,000 4,559 4,569 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 2,972 2,790 3,552 3,484 2,099 1,251 Mandurah Augusta - Margaret River Busselton 3 mnths to Oct 11 Bunbury 3 mnths to Oct 12 Manjimup

So what does the future hold?

Short term starts outlook

WA Housing Starts Forecasts Source: HIA Economics Group 30.00

25.91

25.00

22.56

22.91

24.70

22.44

20.00

18.45

25.09

20.80

17.52

15.00

Forecast 23.02

21.92

10.00

5.00

0.00

2003/04 (a) 2004/05 (a) 2005/06 (a) 2006/07 (a) 2007/08 (a) 2008/09 (a) 2009/10 (a) 2010/11 (a) 2011/12 (a) 2012/13 2013/14

The outlook for renovations

WA Renovations Forecasts Source: HIA Economics Group 6,000 5,000 Forecast 4,244 3,945 4,536 4,869 4,322 4,620 4,773 4,000 3,000 3,078 3,249 3,255 3,515 2,000 1,000 0 2003/04 (a) 2004/05 (a) 2005/06 (a) 2006/07 (a) 2007/08 (a) 2008/09 (a) 2009/10 (a) 2010/11 (a) 2011/12 (a) 2012/13 2013/14

Economic reform is the key

THANK YOU FOR YOUR TIME THIS MORNING Harley Dale HIA Chief Economist December 2012 http://economics.hia.com.au