BIS Shrapnel’s latest edition of the state of the building industry ‘Building in Australia, 2005 to 2020’, predicts commercial building will rise strongly rise in 2005/06, pushing up overall activity in the building sector despite the forecast of a mild downturn in housing construction. This outlook will support further employment growth in the building sector.
The study finds that in contrast to previous downturns, the decline in housing starts in 2004/05 was not a result of a nationwide over-supply of housing. While some pockets of excess have developed, the number of new dwelling starts in New South Wales and Queensland is currently tracking well below underlying demand. Low residential rental vacancy rates in most capital cities back up this view.
An extended downturn in housing starts from 2004/05 to 2006/07 would push supply well below underlying demand, and lead to a rising dwelling stock deficiency. This situation should be most evident in New South Wales and Queensland. Anderson believes it will lead to a pronounced shortage of rental properties, as investor financed construction is dampened by the prospect of limited capital gains.
This scenario will create the seeds for the next upturn in residential building and property markets. Tight residential markets should lead to rising growth rates for rentals in 2005/06 and 2006/07. Improving yields on residential property will place a floor under investor financed construction. Improving housing affordability should lead to a gradual pick-up in residential property markets, and support owner-occupier demand for new dwellings. These forces are expected to create the next strong upturn in residential building activity from 2007/08 to 2009/10.
Source: Building Products News.