The Outlook for Residential Construction in the

South West

Dr. Harley Dale

HIA Chief Economist

HIA South West Industry Update

Bunbury

December 2012

The most comprehensive housing report card produced in Australia

Spring 2012 edition:-

• The global outlook could be worse, but it’s not that good.

• Australia is in sound economic shape, but the devil is in the detail.

• The outlook for WA is indeed impressive, relative to other states (rivalled only by Queensland), though the state has had better.

• Residential construction is showing promise.

For more information on the HIA Economics Group, please contact us at:

(02) 6245 1393 or economics@hia.com.au

HIA WA Outlook, Spring 2012 edition

• “Sentiment towards the global economy has soured … and so the perception is that global economic prospects have weakened.”

• The implications for interest rates:-• “Against this backdrop, the Reserve Bank of Australia (RBA) cut interest rates by a

further 25bps on October 2, taking the Official Cash Rate (OCR) to 3.25 per cent.”

• “We’re maintaining our view that 2012/13 will see a decent rebound of 25.1 per cent, followed by a year of consolidation in 2013/14 wherein starts are forecast to grow by a modest 5.0 per cent. This would leave the level of starts in WA at 23,024…”

• “… activity in the coming months will be crucial to this view materialising.”

‘We’ll all muddle through’ seems to be the view

WA Economy – looking better than mid year

INDICATOR UPDATE

Gross State Product Improved

Interest rate outlook Improved

Household consumption Mixed

Unemployment Improved/mixed

Detached houses Improved

Multi-units Improved

Renovations Improved

WA ECONOMY

Economic growth is strong in WA, but…

-5.7%

1.6% 1.8% 2.7% 2.9%

5.6%

9.6%

28.7%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

TAS VIC SA QLD NSW ACT WA NT

Annual growth in State Final Demand (% change to September 2012 quarter)Source: HIA Economics Group

… not everywhere

5.9% 1.4%

-10.9%

8.9%

18.3%

7.2%

-31.5%

-22.2%

-40.0%

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

Private businessinvestment

Household consumption New home investment Renovations investment

WA's state final demand - key components September quarter, 2012 Source: ABS National Accounts

Qtrly change Annual change

Interest rates back near historic lows

• 2012 has seen a total of 125bps of cuts to the official cash rate.

• However, households and businesses have not received all these cuts – there should still be more yet to come…

2.00

2.10

2.20

2.30

2.40

2.50

2.60

2.70

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

10.00

11.00De

c-09

Jan-

10Fe

b-10

Mar

-10

Apr-1

0M

ay-1

0Ju

n-10

Jul-1

0Au

g-10

Sep-

10O

ct-1

0No

v-10

Dec-

10Ja

n-11

Feb-

11M

ar-1

1Ap

r-11

May

-11

Jun-

11Ju

l-11

Aug-

11Se

p-11

Oct

-11

Nov-

11De

c-11

Jan-

12Fe

b-12

Mar

-12

Apr-1

2M

ay-1

2Ju

n-12

Jul-1

2Au

g-12

Sep-

12O

ct-1

2No

v-12

Dec-

12

% In

tere

st R

ate

Interest Rates, Australia Source: HIA Economics, RBA

Mortgate Rate Margin to Cash Rate (RHS) Discounted Variable Mortgage Rate RBA Cash Rate Small Business Variable Term Loan

Hopefully to keep confidence more buoyant

75

80

85

90

95

100

105

110

115

120

125

Nov-94 Nov-96 Nov-98 Nov-00 Nov-02 Nov-04 Nov-06 Nov-08 Nov-10 Nov-12

Inde

x

Consumer ConfidenceSource: Westpac-Melbourne Institute

The Western Australian Economy

Gross state product: not amazing, but still decent…

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

Jun.

1994

Jun.

1995

Jun.

1996

Jun.

1997

Jun.

1998

Jun.

1999

Jun.

2000

Jun.

2001

Jun.

2002

Jun.

2003

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2004

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2005

Jun.

2006

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2009

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2011

Jun.

2012

Jun.

2013

Jun.

2014

Jun.

2015

Jun.

2016

Year ended June

Gross State Product - Western AustraliaSource: ABS 5220.0; Access Economics

Long term average

Forecast

WA’s labour market

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

11.0

12.0

Nov-

92

Nov-

93

Nov-

94

Nov-

95

Nov-

96

Nov-

97

Nov-

98

Nov-

99

Nov-

00

Nov-

01

Nov-

02

Nov-

03

Nov-

04

Nov-

05

Nov-

06

Nov-

07

Nov-

08

Nov-

09

Nov-

10

Nov-

11

Nov-

12

Per c

ent

Per c

ent

Western Australia's Labour MarketSource: ABS Labour Force

U/e rate (LHS) Annual Employment Growth Rate (RHS)

Residential construction in WA

Where we’ve come: WA’s housing starts

22.56 22.91

25.9124.70

22.44

18.45

25.09

20.80

17.52

0.00

5.00

10.00

15.00

20.00

25.00

30.00

2003/04 (a) 2004/05 (a) 2005/06 (a) 2006/07 (a) 2007/08 (a) 2008/09 (a) 2009/10 (a) 2010/11 (a) 2011/12 (a)

Thou

sand

dwe

llings

com

men

ced

WA Housing Starts Source: HIA Economics Group

WA’s alterations and additions

3,0783,249 3,255

3,515

4,244 3,945

4,5364,869

4,322

0

1,000

2,000

3,000

4,000

5,000

6,000

2003/04 (a) 2004/05 (a) 2005/06 (a) 2006/07 (a) 2007/08 (a) 2008/09 (a) 2009/10 (a) 2010/11 (a) 2011/12 (a)

Valu

e of

Inve

stm

ent

WA Renovations ForecastsSource: HIA Economics Group

South West home to Hotspots in 2010/11

1 Serpentine-Jarrahdale (S) Perth 108,861 6.92 Armadale (C) Perth 206,900 5.43 Wanneroo (C) - North-East Perth 140,809 5.44 Mandurah (C) South West 213,614 5.35 Wanneroo (C) - North-West Perth 235,109 4.76 Rockingham (C) Perth 277,445 3.77 Roebourne (S) Pilbara 186,240 3.38 Cockburn (C) Perth 280,512 2.99 Port Hedland (T) Pilbara 149,502 2.9

10 Swan (C) Perth 282,568 2.811 Busselton (S) South West 146,801 2.812 Gosnells (C) Perth 146,107 2.213 Stirling (C) - Central Perth 258,632 2.114 South Perth (C) Perth 128,190 1.915 Stirling (C) - Coastal Perth 271,663 1.816 Canning (C) Perth 128,542 1.6

Statistical Local Area Statistical Divison Residential Building Approved, 2010/11, ($'000)Annual Population Growth Rate (%)

WA Building and Population Hotspots****SLAs with in excess of $100 million in residential building work approved in 2010/11 and with an annual population growth rate in excess of the national average

Land sales and prices in the South West

• Land sales increased by 10% in the June 2012 qtr; by 17% in 2012H1.

0

200

400

600

800

1,000

1,200

1,400

1,600

0

50,000

100,000

150,000

200,000

250,000

Jun-

2004

Sep-

2004

Dec-

2004

Mar

-200

5

Jun-

2005

Sep-

2005

Dec-

2005

Mar

-200

6

Jun-

2006

Sep-

2006

Dec-

2006

Mar

-200

7

Jun-

2007

Sep-

2007

Dec-

2007

Mar

-200

8

Jun-

2008

Sep-

2008

Dec-

2008

Mar

-200

9

Jun-

2009

Sep-

2009

Dec-

2009

Mar

-201

0

Jun-

2010

Sep-

2010

Dec-

2010

Mar

-201

1

Jun-

2011

Sep-

2011

Dec-

2011

Mar

-201

2

Jun-

2012

$

No. of sales Value

RESIDENTIAL LAND SALES & MEDIAN LOT VALUE - SOUTH WEST

Sour

ce: r

pdat

a.co

m, H

IA E

cono

mics

WA approvals heading in the right direction…

500

1,000

1,500

2,000

2,500

3,000

Oct

-90

Oct

-92

Oct

-94

Oct

-96

Oct

-98

Oct

-00

Oct

-02

Oct

-04

Oct

-06

Oct

-08

Oct

-10

Oct

-12

Num

ber

Building Approvals - WASource: ABS Building Approvals

Seasonally adjusted Trend

…and across the Bunbury region

0

20

40

60

80

100

120

140

160

180

Jul-1

1

Aug-

11

Sep-

11

Oct

-11

Nov-

11

Dec-

11

Jan-

12

Feb-

12

Mar

-12

Apr-1

2

May

-12

Jun-

12

Jul-1

2

Aug-

12

Sep-

12

Oct

-12

num

ber o

f app

rova

ls

Total dwelling approvals , Bunbury region Source: ABS Building Approvals

3 months to Oct 12 v Oct 11, +3% change

Selected South West areas

219

145

214

39

333

159

208

43

0

50

100

150

200

250

300

350

Mandurah Augusta - Margaret River -Busselton

Bunbury Manjimup

Total dwelling approvals, selected South West areas - Oct 'qtr' 2012 vs Oct 'qtr 2011 Source: ABS, HIA economics

3 mnths to Oct 11 3 mnths to Oct 12

House and unit values – tracking sideways?

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

Nov-

02

Nov-

03

Nov-

04

Nov-

05

Nov-

06

Nov-

07

Nov-

08

Nov-

09

Nov-

10

Nov-

11

Nov-

12

House and unit prices - Regional WA, November 2012 Source: RP Data and Rismark 3 month rolling simple median

Regional WA Houses Regional WA Units

Mixed performance of prices in the South West

Median priceQuarterly growth

(%)12 month growth

(%)10 year growth (% per annum)

Mandurah 363,000$ 5.1 2.8 10.8Augusta 470,000$ 0 2.2 8.0Bussleton 415,000$ -1.2 -6.7 9.8Bunbury 480,000$ 0 1.1 8.6Manjimup 230,000$ -9.8 9.8 11.1Margaret River 425,000$ -1.2 -2.7 6.9Source Australian Property Monitors

House Prices: 12 Months to September 2012

Improvements in WA’s affordability

30.0

40.0

50.0

60.0

70.0

80.0

90.0

S07 D07 M08 J08 S08 D08 M09 J09 S09 D09 M10 J10 S10 D10 M11 J11 S11 D11 M12 J12 S12

HOUSING AFFORDABILITY INDEX, WA

PERTH REST OF WA

Sour

ce: H

IA-C

omm

onwe

alth

Bank

Affo

rdab

ility R

epor

t

HOUSING AFFORDABILITY INDEX, WA

Total renovations investment: sliding in WA…

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

5,500Se

p-19

90

Sep-

1991

Sep-

1992

Sep-

1993

Sep-

1994

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1995

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1996

Sep-

1997

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1998

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2001

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Sep-

2003

Sep-

2004

Sep-

2005

Sep-

2006

Sep-

2007

Sep-

2008

Sep-

2009

Sep-

2010

Sep.

2011

Sep.

2012

$ m

illion

(Mov

ing

Annu

al T

otal

)

Renovations Investment in Western Australia - Moving annual totalSource: ABS State Final Demand

… as in the Bunbury region

-

1,000

2,000

3,000

4,000

5,000

6,000

Jul-1

1

Aug-

11

Sep-

11

Oct

-11

Nov-

11

Dec-

11

Jan-

12

Feb-

12

Mar

-12

Apr-1

2

May

-12

Jun-

12

Jul-1

2

Aug-

12

Sep-

12

Oct

-12

$'00

0

Value of major renovations approvals , Bunbury region Source: ABS Building Approvals

3 months to Oct 12 v Oct 11, -8.9% change

Alts and adds in selected South West areas

2,972

3,552

4,559

2,099

2,790

3,484

4,569

1,251

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

Mandurah Augusta - Margaret River -Busselton

Bunbury Manjimup

$'00

0

Value of major alts and adds approvals ($'000) - Selected South West areas, Oct 'qtr' 2012 vs Oct 'qtr 2011 Source: ABS, HIA economics

3 mnths to Oct 11 3 mnths to Oct 12

So what does the future hold?

Short term starts outlook

22.56 22.91

25.9124.70

22.44

18.45

25.09

20.80

17.52

21.9223.02

0.00

5.00

10.00

15.00

20.00

25.00

30.00

2003/04 (a) 2004/05 (a) 2005/06 (a) 2006/07 (a) 2007/08 (a) 2008/09 (a) 2009/10 (a) 2010/11 (a) 2011/12 (a) 2012/13 2013/14

Thou

sand

dwe

llings

com

men

ced

WA Housing Starts ForecastsSource: HIA Economics Group

Forecast

The outlook for renovations

3,0783,249 3,255

3,515

4,244 3,945

4,5364,869

4,3224,620 4,773

0

1,000

2,000

3,000

4,000

5,000

6,000

2003/04 (a) 2004/05 (a) 2005/06 (a) 2006/07 (a) 2007/08 (a) 2008/09 (a) 2009/10 (a) 2010/11 (a) 2011/12 (a) 2012/13 2013/14

Valu

e of

Inve

stm

ent

WA Renovations ForecastsSource: HIA Economics Group Forecast

Economic reform is the key

THANK YOU FOR YOUR TIME THIS MORNING

Harley DaleHIA Chief Economist

December 2012http://economics.hia.com.au