Jobs hope rising for embattled building industry

NEW South Wales, Queensland and Western Australia are expected to lead Australia's building recovery with Sydney showing the most promise, according to a new report.

According to the Building in Australia 2013 report from economics forecasting firm BIS Shrapnel, the upswing in building activity needed to offset the post-mining-boom lull will gather momentum over the next two years.

While Brisbane will lead the regions as an epicentre of growth, BIS associate director Kim Hawtrey said the pace will be "uncomfortably slow".

"We're in for a real nail-biter," Dr Hawtrey said.

"We see an upswing in building but it will be uneven and slower to get going than usual. The next 12 months will
be a critical test of how quickly the construction sector can take on more of the heavy lifting, and the Australian economy will remain balanced on a knife edge."

Building, especially home construction, is not responding to low interest rates as might be expected.

"Home building has been punching below its weight and normally low mortgage rates would be stimulating the sector toward clear recovery by now. But the antibiotics are taking longer to work this time around," said Dr Hawtrey.

"High household debt, concerns about the global economy, planning restrictions in some states and lack of land supply are among the factors that explain this new phenomenon."

Baby builders put off by affordability concerns

Demographic changes are also at work. Population is growing strongly but generational changes mean it is not necessarily translating into demand for new housing.

"Baby boomers, once the drivers of home construction, are now putting a brake on building as their numbers outweigh younger generations," said Hawtrey.

"For their part, young people are discouraged by affordability barriers and changes to first home buyer grants."

The Building in Australia report provides an independent medium term assessment of
the Australian building industry outlook.

It contains demographic trends and detailed forecasts on the residential (housing, other dwellings), non-residential (commercial, industrial, social and institutional) sectors, and the alterations and additions market, by state.

The report covers key drivers for housing demand, population trends, the outlook for building material costs and the non-residential building market.

BIS report shows little growth in 2013/2014

Surprisingly, the Building in Australia 2013 Report predicts that residential building will show little overall growth in 2013/14, with gains in some areas matching losses in others.

It will be a year of change in the mix - from Victoria to New South Wales, and from high rise to bungalows - beforegaining strong traction the following year, in 2014/15.

An improvement in residential markets will be seen in New South Wales, Queensland and Western Australia, where population growth and stronger economies will see home building respond to rising stock deficiencies.

Each market has an estimated dwelling stock deficiency and in these states, recovery is expected to be driven by upgrader/downsizer demand and strong investor demand - including from overseas investors - with first home buyers taking longer to join in because of changes to grants.

Lower interest rates, together with solid economic growth and employment, will underpin improved confidence and promote new residential building - particularly in the key state of New South Wales.

However, Victoria and other southern states will see a contraction, offsetting the above.

This will be an inevitable correction following several record years of phenomenal home building in Victoria.

These markets are generally in oversupply, notably Victoria.

Consequently the immediate outlook for the number of dwelling commencements is mixed, and is forecast to change by -2 per cent in 2013/14.

Pent up demand to sustain better overall growth

Pent up demand and solid economic fundamentals will then sustain better overall national growth in home building during 2014/15 and 2015/16.

A stronger pick up is forecast for 2014/15 (+9 per cent) and 2015/16 (+4 per cent) as the market builds momentum.

This will be on the back of low interest rates, strong population growth and pent up demand in key states. The lower Australian dollar -- compared with recent years -- will help stimulate traditional industries.

The lower construction prior to 2013, as well as an expected improvement in confidence and income growth, will underpin the outlook.

Moderating the upturn will be residual consumer caution amid concerns over rising unemployment, affordability barriers and high household debt levels.

Natural cyclical factors will then lead to a correction in the cycle during 2016/17 (-5 per cent) and in 2017/18 (-8 per cent).

Nationally, the recovery will see private detached house starts grow by two per cent in 2013/14 and 12 per cent in 2014/15, the report predicts.