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18 December 2007

No quick fix for housing shortage in key cities -– Westpac/AIQS BRIX Survey

The current housing shortage in most east coast Australian capital cities won't be resolved anytime soon based on findings from the latest Westpac/AIQS BRIX Building Survey, Westpac's Director of Property Markets, Frank Allen, said.

The Survey shows a net balance of less than 20% of respondents expect workloads in the residential sector to increase over the next six months, Mr Allen said, with the non-residential sector remaining more positive despite some likely impact on sentiment from the November interest rate hike.

"With vacancy rates under 2% in most cities and record levels of international migrants pushing Australia's population up by 1.5% to above 21 million in June, more dwellings are needed. But the Quantity Surveyors responding to the Survey suggest they believe little increase is expected," he said.

This follows the recent release of ABS dwelling approvals which showed a 2.8% monthly decline in the number of dwellings approved. While the trend in approvals is slowly rising, it still falls significantly short of estimated underlying dwelling demand.

The Survey of Australia's major quantity surveying companies is conducted quarterly for Westpac and the Australian Institute of Quantity Surveyors (AIQS) by Dr Anthony Mills at RMIT University in Melbourne and covers in excess of $18 billion worth of projects. The Survey examines each phase of the construction cycle: pre-construction, during construction and post-construction.

However, the general confidence levels in the non residential sector lift the overall results of the Survey to show a general expectation of rising workloads over the same period. A net balance of 28% of respondents expect workloads to continue rising in the December 2007 quarter and 59% in the March 2008 quarter.

Nevertheless, the level of optimism has deteriorated when compared to the June survey. Queensland respondents had the most optimistic outlook for the December 2007 quarter, with a net balance of 67% of respondents expecting workloads to increase. However a net balance of 25% of respondents in New South Wales expect workloads to decline in the December 2007 quarter. South Australian respondents recorded the most positive outlook for the March 2008 quarter with a net balance of 100% of respondents expecting workloads to improve.

"While sentiment remains positive, the deterioration since the June survey could well be due the November interest rate rise, expectations for future interest rate rises and the negative sentiment surrounding the credit crunch in the US and how it has spread to Europe. However domestic conditions remain upbeat, with GDP growth coming in at 4.3% in the year to September and unemployment at very low levels" said Mr Allen.

Building costs are still rising, with Quantity Surveyors reporting a growth rate of 6.4% for the year to September 2007, against a forecast of 5.7% from the September 2006 survey. Respondents expect that building costs will rise by 6.4% in the year to September 2008.

"Not surprisingly, Western Australia recorded the strongest rate of growth in the year to September 2007 at 10.8%,"said AIQS General Manager Terry Sanders.

"However, what may surprise is that this was the lowest estimate for building price growth in Western Australia since the first quarter of 2006. Over the year to September 2008 the level of growth is forecast to vary considerably across the major states. NSW is expecting the slowest rate of growth at 4.4% and WA the fastest at 10.7%. This is the highest estimate for building price growth in NSW since the first quarter of 2005."

Some trades have experienced more stress than others. The Earthworks trade had the highest cost growth in the September 2007 quarter at 4.7%. Brickwork saw the smallest cost rise at 1.2% over the quarter.