NORTH SYDNEY, Australia, Sept. 10, 2012 (GLOBE NEWSWIRE) -- Australia does not face a collapse in house prices as some international commentators have recently suggested. In fact, home building is set to fill the gap left by mining when the current commodities boom subsides, according to findings from respected Australian economic forecaster BIS Shrapnel.
The findings – from BIS Shrapnel's recently released Building in Australia 2012 report – are being released in response to a recent report originating in the U.S. which claims that the Australian economy is on the verge of a sharp downturn and suffering from "Dutch Disease".
There is much current media discussion around how Australia's economy is faring in the face of the high $A exchange rate which is hurting its manufacturing base. The country's mining boom is said to be waning, however, due to slower European economic growth, leading some to predict hard times ahead for the nation of 22.7 million people, with a possible slump in the currency.
BIS Shrapnel forecasts, however, show that new dwelling construction will provide a boost to the economy at exactly the right time, allowing Australia to retain its nickname as "the Lucky Country."
"Australian housing construction is set for a period of solid growth over the next few years," says Dr Kim Hawtrey, BIS Shrapnel's Associate Director.
"The building industry lost some of its momentum after the Global Financial Crisis but has weathered the storm and is now ready for business. As the mining boom scales down, we expect the housing sector to step up to the plate."
BIS Shrapnel forecasts that new dwelling commencements will become the next engine of growth after the country's mining 'gold rush', with home building expected to rise nationally by 3.3 percent in 2012/13, then by a sizable 12.0 percent in 2013/14, and by a further four percent in 2014/15.
These are the key messages in BIS Shrapnel's latest forecasts, which are included in their Building in Australia 2012 report. The highly regarded Building in Australia report is now in its 32nd annual edition and forms part of the forecaster's reputation as an international expert on property markets across multiple countries.
The report found that new dwelling starts will post significant growth over the next three years in the most populous state of New South Wales (set to rise 65 percent by 2015), as well as in the resource-intensive states of Queensland (+47 percent) and Western Australia (+63 percent). This upswing in home building activity will be mainly accounted for by high rise apartments in Sydney and Brisbane, and by detached houses in Perth.
An undersupply of dwellings in key cities, combined with improved home affordability, explain the reasons behind the upbeat outlook for building in the nation's economy.
"Australia's population growth is projected to stay around the current high of 1.8 percent per annum during the next few years," says Dr Hawtrey. "This reflects Australia's strong economy which in turn is attracting significant numbers of new immigrants.
"In building terms, the surge in population into the country makes a huge difference. More people needing to be housed inevitably means more houses need to be built."
Another important driver is improved home affordability. Recent actions by the country's central bank have seen interest rates come down, making mortgages more accessible to larger numbers. Young people in particular – the 25-35 age group who often drive the demand for new home construction – are expected to respond positively to this development.
A third positive factor boosting the industry Down Under is a raft of new government home buyer incentives, such as the First Home Owner Grant (New Homes) Scheme recently announced by the New South Wales state government. It offers a cash grant of A$15,000 to buyers of a new home up to a limit value of A$650,000, and is set to come into effect from October 1, 2012.
"The introduction of such incentives is likely to result in a surge of interest from potential home buyers, especially in metropolitan areas where cost is a key factor," says Dr Hawtrey. "We expect it to impact on new home construction in key emerging growth corridors."
The Building in Australia 2012 report finds that these three factors – population growth, improved affordability, and government stimulus – when found together usually combine to produce a generous upswing in home construction.
Australian house prices are forecast to rise over the next 3 years, especially in Sydney (predicted to be up by 16% by 2015), Brisbane (+18%) and Perth (+20%). "There is plenty of pent-up demand in these cities that will keep prices buoyant for the foreseeable future," says Hawtrey.
Accelerating first home buyer demand, "upgrader" demand (second home buyers wishing to improve the size or quality of their housing) and investor demand is expected over 2012/13 and will then continue to build momentum for several years afterwards.
"The Australian industry is heading into a positive phase and it is hard to see anything on the horizon that might upset that," says Dr Hawtrey. "If and when the mining boom winds down, Australia's economy will still be in good shape and a key factor will be its home building sector."
About BIS Shrapnel
BIS Shrapnel is Australia's leading provider of industry research, analysis and forecasting services. BIS Shrapnel helps clients better understand the markets in which they operate, through reliable and detailed market data, analysis of developments and drivers and thoroughly researched forecasts. Over the company's 48-year history, BIS Shrapnel has built up a strong level of expertise and unique methodologies for forecasting. Visit www.bis.com.au for information.