Housing activity hits hurdle

A further rise in interest rates next week, coupled with increasing housing prices and slow residential land releases in Western Australia, has industry analysts predicting a significant fall in housing starts in 2006-07.

In its latest edition of Building Industry Prospects, economic forecaster BIS Shrapnel claimed deteriorating affordability of new dwellings and a 40 per cent rise in building costs during the past three years had contributed to its prediction of a 4 per cent decline in dwelling commencements in 2006-07.

However, the Housing Industry Association (WA) considers this figure to be an understatement.

The association is forecasting a 13 per cent drop in housing starts over the 2007 calendar year, compared with 2006, primarily due to constraints caused by land availability and interest rate rises.

HIA (WA) executive director John Dastlik said approval figures for detached dwellings had been in decline for the past three to four months, and the trend would continue.

“What we’ll see is a short-term decline in approvals and a slowing down of housing starts over the next two years. But WA’s strong economic fundamentals will ensure that housing starts will go back up again by 2008,” Mr Dastlik said.

According to the HIA, new housing starts increased by 11 per cent to 25,640 in 2005-06 while the market share of the largest 20 builders fell from 68.9 per cent to 64.4 per cent over the same period.

WA’s second largest residential builder, Dale Alcock, told WA Business News there already was a marked decline in home sales, and it would be four to five months before this took effect.

Mr Alcock maintains that the volume of residential building activity will decline by 10 per cent in 12 months.

“The industry has expected the market to come off, but it’s a concern when we’ve got a drop-off of first homebuyers. They’re disappearing,” Mr Alcock said.

“If you’re a first-home buyer spending $250,000 to $350,000 on a block, how can you afford that?”

Mr Alcock said that, by world standards, WA’s median house price of $450,000 was crippling but predicted price growth would likely stabilise in the short-term.

The current lack of available land remains his biggest concern at a time when civil contractors still had the capacity to build more homes.

“It’s easy for the government to blame the decline of housing activity on an overheated construction sector, but I’ve spoken with the Civil Contractors Association and others who say they have the capacity to do this work,” Mr Alcock said.

“In reality, how many of those 40,000 lots out there will be approved without conditions?”

Australia-wide, BIS Shrapnel predicts national housing commencements to fall by 5 per cent in 2006-07 to 142,500, following a 4 per cent drop to 150,500 housing starts in financial year 2005-06.