THE HOUSING INDUSTRY FORECASTING GROUP RELEASED ITS LATEST REPORT ON DWELLING COMMENCEMENTS THIS MONTH. THE HIFG IS A UNIQUE BODY WHICH BRINGS TOGETHER ALL OF THE KEY STAKEHOLDERS FROM GOVERNMENT AND INDUSTRY TO TRY TO UNPACK THE DATA AND PREDICT WHAT WILL HAPPEN IN THE RESIDENTIAL PROPERTY MARKET.
The main goal is to identify early trends that indicate risk to housing supply and affordability. They noted that, while the market is contracting, it is still performing well above the long-term averages. The performance has been so strong that the HIFG revised up the forecast number of commencements for 2014-15 from 25,000 to 30,000, a 2.9 per cent increase on last year’s performance.
Looking forward, the group raised the forecast for next year by 500, but even at 23,000 that represents a 23 per cent contraction on this year’s high. The reality is that this is a return to normality after a record-breaking period and has been widely anticipated by the industry.
It is always challenging to call the bottom of the cycle in advance but the collective experience of the HIFG thinks that is likely to occur in 2016-17 with a low of 20,000 commencements, recovering the following year to about 20,000 – 22,000 commencements. This is still significantly higher than the low of 17,785 recorded in the 2011-12 financial year after the withdrawal of the First Home Buyer Grant boost payment.
Around 23,000 serviced lots are required for 2014-15, falling to 17,700 in 2015-16 and around 15,000 in the two years beyond that. The land will be sourced from both new developments and demolitions of existing stock, with the latter potentially providing up to 2500 lots per annum.
Some of the volatility in the market can be attributed to the strong population growth in 2012 and 2013, spurred on by record overseas migration. After six quarters of contracting net overseas migration figures, the September quarter 2014 saw a strong unexpected jump, with 10,911 people moving to WA, an average of 118 people every day.
The wild card going forward is net overseas migration as that cohort drives the volatility in population growth and sharpens the peaks and troughs in the market.
The WA Treasury forecasts population growth of 2 per cent in 2015-16, rising by 0.1 per cent in each of the following two years. Should that figure be significantly different, it will affect how quickly the market moves into the recovery stage of the cycle.