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The Outlook for the Economy and Housing In Australia Ben Phillips Assistant Director – Industry and Policy, HIA April 2008. The World Economy – is it falling apart?. No it isn’t!
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The Outlook for the Economy and Housing In Australia Ben Phillips Assistant Director – Industry and Policy, HIA April 2008
The World Economy – is it falling apart? • 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.
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”.
The Economic Backdrop for Australia
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.
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.
… the (domestic) interest rate world is now ugly • 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.
Components of Growth by State • 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.
Investor Lending – holding up better than most, although rates a new concern.
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
National Housing Policies The Supply side: Infrastructure provision • 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: the tight rental market • 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 ‘Demand’ side: a savings vehicle • 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 A greater recognition? • 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 The Labour element • 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
Some points to take away • 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.
Ben Phillips Assistant Director – Industry and Policy, HIA April 2008 http://economics.hia.asn.au
