Housing recovery delay – HIA

13/11/2007 - 22:00

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The Housing Industry Association has warned that Western Australia’s housing affordability crisis will intensify, with the likelihood of two further interest rate rises this cycle.

Housing recovery delay – HIA

The Housing Industry Association has warned that Western Australia’s housing affordability crisis will intensify, with the likelihood of two further interest rate rises this cycle.

Releasing the association’s National Outlook report last week, HIA chief economist Harley Dale told a property industry breakfast in Perth that poor housing affordability in the state would delay a recovery in residential building until the end of the decade.

According to the report, WA housing starts fell 5 per cent in 2006-07 to 24,560. HIA predicts housing starts will continue to struggle in 2007-08, with an 11 per cent fall in starts to 21,920.

While 2008-09 is expected to be a flat year, the HIA believes the end of the decade will be marked with growth of 2 per cent as the ongoing strength of the WA economy moves to prevent housing starts going into free-fall.

Mr Dale said WA was riding an unprecedented boom, but there were challenges against the wider economic background

“I think there will be another interest rate rise in February, and WA must brace for another rate rise after that. The cold hard reality is that we can’t run from it,” he said.

Mr Dale likened the current interest rate environment to a “Reserve Bank on steroids” with interest rates having risen twice this year, and six times since the last federal election in 2004.

In total, the current cycle had endured 10 rate rises, marking the longest tightening interest rate cycle of the modern era, according to the report.

With market analysts closing watching the fall-out of the US sub prime mortgage crisis, Mr Dale believed the WA economy would weather the US uncertainty and rising domestic interest rates.

“There is a 50-50 chance that the US will enter a recession in the next six to nine months. This will not have such a detrimental effect on demand from East Asia,” he said.

“We must de-couple from the US. The China boom has been good for WA and the state should expect good strong growth through the rest of the decade.”

While economic conditions continue to impact on the new housing market, the state’s engineering and construction sector has been making the most of it.

Over the 2006-07 financial year, the report found private engineering construction rose 35 per cent to just under $12 billion, 4.8 times its value five years ago.

In the same period, engineering construction in WA accounted for 40 per cent of all private engineering construction nationally. 

In the renovations market, meanwhile, total investment in renovations hit a new record of $2.9 billion in 2006-07, an increase of 11 per cent.

Investment this year is forecast to rise 4 per cent and mark the peak for the cycle, before a slight easing of 4 per cent over 2008-09 and 2009-10.

Mr Dale said trade contractor prices were growing at up to 4 per cent above the rate of inflation, and this was likely to continue over the short term.

“WA is going to see the renovations market outperform, relative to the new home building market. WA’s strong income and equity means people will continue to borrow against the equity in their homes despite the interest rate environment.” 

Second-storey and ground-floor extensions remain the most popular renovations, according to the report.

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