It hasn't got much attention, but Barry O'Farrell's first budget included an awkward flop. Six reforms were showcased to assist the state's ailing home building industry, including changed stamp duty concessions, the abolition of levies and new land releases. The result? Investment in new housing, already in the doldrums, has continued falling to near 50-year lows.
His second budget, handed down this week by the Treasurer, Mike Baird, included a much more serious effort, headlined by a subsidy of up to $35,240 for first-time buyers purchasing a new home and half a billion dollars to accelerate the release of 76,000 housing lots.
But will the Building the State package be enough to revive an industry that has been in trouble for eight years?
The duration and depth of the downturn has been a drag on the state's growth and on our standard of living. The chronic shortage of new housing supply has put upward pressure on the cost of buying or renting a roof over one's head, one of life's basics.
Nearly a decade after Sydney's momentous property boom peaked, housing in the city continues to be among the most unaffordable in the world. And the worsening shortage of shelter is changing social fundamentals such as the creation of new households.
Robert Mellor, the managing director of property forecaster BIS Shrapnel, says the rate at which new households are forming in Sydney has declined markedly among under-30s and the trend is now showing up in the 30-35 age group.
''That's highlighted by young people staying at home for much longer with their parents or living in larger group houses,'' he said.
Back in 2000, when Sydney hosted the Olympic Games, home-building in the state was booming. That year 55,000 homes were built in NSW and a flood of stamp duty revenue flowed into the state's coffers.
Now only about 25,000 houses are being built in NSW each year. The scale of the slump is underscored through a comparison with Victoria which, despite having 1.6 million fewer people than NSW, has been building twice the number of new homes in recent years.
THE crisis in the state's home building industry has deepened with the commencement of new houses sinking to a 60-year low.
The number of new homes started in NSW last quarter plunged 37.4 per cent to a seasonally adjusted 5158, the Bureau of Statistics said. That is less than half the number in Victoria and significantly fewer than in Queensland, a state with about a third less populous than NSW.
New housing starts in NSW are now more than 40 per cent lower than a year ago.
George Tharenou, an economist with investment bank UBS, said the number of new houses started in NSW in the first three months of the year was the lowest quarterly result since 1951. "It's a disaster, it really is," he said. "It's fair to say the NSW home building market is depressed."
The quarterly results may have been affected by changes to stamp duty concessions in December and by wet weather. Even so, the scale of the slump underscored the chronic weakness in the market.
The figures come a week after the O'Farrell government unveiled its "Building the State" package in the budget, which aims to revive home building and boost supply. It featured a subsidy of up to $35,240 for first-time buyers purchasing a new home and half a billion dollars to accelerate the release of 76,000 housing lots.
The NSW home building industry has been struggling for about eight years and there is concern about the social consequences of a worsening housing shortage, especially in Sydney. The National Housing Supply Council said last week the state has the most acute shortage of housing supply in the country, with an estimated gap between demand and supply of 89,000 homes. The shortage has contributed to a sharp rise in rents.
Around Australia first homebuyers are like a coiled springs just waiting to be released. NSW has found a way to release that stored energy and, while its early days, first homebuyers appear to have started a scramble for dwellings, which will transform the outlook for the NSW home building industry.
And because NSW is Australia’s largest market it will also transform the national home building industry although similar grants by Queensland have not yet had the same effect on first homebuyers while the Victorian Government may have stumbled.
Just 11 days ago, on October 1, NSW introduced a package of measures aimed to deliver around $35,000 to first homebuyers of new dwellings priced at or under $550,000. There are also substantial, but lesser benefits for those who buy new dwellings up to $650,000.
Combine those NSW measures with the recent cuts in interest rates and the prospect of further rate reductions and the stored first home buying energy is being released.
NSW existing home owners (and real estate agents) may be a tad nervous because first homebuyer spending is directed at only new homes.
But last night I was yarning to Australia’s largest apartment builder, Meriton’s Harry Triguboff. He was up beat.
A year ago first homebuyers were around 5 per cent of the Meriton market, which was dominated by Chinese buyers. In the last three months Chinese buying has subsided because of the uncertainty at home and fears about the Australian dollar.
But in the last 11 days Meriton orders from first homebuyers have soared and currently represent 45 per cent of all Meriton Sydney apartment sales.
Meriton is able to price apartments at $550,000 AND developments in the outer Sydney areas like St Ives and Warriewood have been big beneficiaries. However, in some inner city developments smaller apartments are priced within the $650,000 cap.
While Triguboff may have had Meriton ready to take full advantage from midnight on October 1, the momentum in Meriton will spread to the remainder if the Sydney new home market, especially in the outer suburbs where the $550,000 price point can be reached.
No one is sure why Brisbane did not immediately respond but it would seem that the severity of the state government cuts and the fears about what will happen to coal mining would have played a role. Again it is early days and addition a large part of the Brisbane building skills base is employed constructing the mines.
In NSW the $35,000 benefit to first homebuyers purchasing dwellings up to $550,000 is made up of a $15,000 grant and stamp duty relief. In dwellings priced at $650,000 there is no stamp duty relief but the grant continues. First homebuyers can be investors and receive the grant.
However the grant is reduced to $10,000 in 14 months -- December 31 2014.
Victoria had a very favourable first homebuyers grant but slashed it to $7,000 on July 1. It has stamp duty concessions but they are not as good as NSW for new homes.
By targeting new homes, NSW is lifting the supply of dwellings in the building industry and hoping that the lower interest rates will look after existing homes.
Around Australia first homebuyers are like a coiled springs just waiting to be released. NSW has found a way to release that stored energy and, while its early days, first homebuyers appear to have started a scramble for dwellings, which will transform the outlook for the NSW home building industry.
Just 11 days ago, on October 1, NSW introduced a package of measures aimed to deliver around $35,000 to first homebuyers of new dwellings priced at or under $550,000. There are also substantial, but lesser benefits for those who buy new dwellings up to $650,000.
Combine those NSW measures with the recent cuts in interest rates and the prospect of further rate reductions and the stored first home buying energy is being released.
But in the last 11 days Meriton orders from first homebuyers have soared and currently represent 45 per cent of all Meriton Sydney apartment sales.
I remember how the GHPC bears laughed in 2007, and the Credit Crunch bears laughed in 2009, when I said Sydney would experience a construction boom beginning around 2011.
According to the bears, Sydney had a huge oversupply of empty dwellings that would soon flood the market.
But of course there was no flood, and in 2011 the incoming NSW government did introduce a raft of measures aimed at boosting home construction, and more recently they announced changes to stamp duty and first homebuyer grants which deliver up to $35K to FHBs buying new dwellings.
The expectation of a residential construction boom has really started to gain traction in the media, especially after the RBA recently stated that it expects housing construction to take over from the fading mining boom as the main driver of Australian employment and economic activity over the coming years.
So, it looks like I was a year out, and the construction boom is beginning now in 2012 rather than 2011. But there is little doubt now that it has begun.
Around Australia first homebuyers are like a coiled springs just waiting to be released.
This is what I have been saying for several months. The pent up demand is palpable.
Every time Shad calls a construction boom, activity falls off a cliff.
His most recent prognostications are not a good sign for building companies, many of whom who are already doing it tough.
For the love of all that is good and holy Shad, help the industry out by predicting a crash in building starts! These are people's lives you're playing with.
Also, and as a personal favour to me, could you predict a Collingwood Premiership in 2013.
Every time Shad calls a construction boom, activity falls off a cliff.
I have only ever called one construction boom - i.e. the current one that is beginning now.I should also point out that Sydney construction activity didn't fall off a cliff at any time since I first predicted, in 2007, that a construction boom would begin around 2011. I first made this call on GHPC in 2007, and Sydney construction had already fallen off the cliff at that time, and has been lying at the bottom of that cliff for many years, which is just one of the reasons why in 2007 I predicted the construction boom would begin around 2011.
Shadow, what effect do you think this will have on Sydney house prices? What effect has the axing of the grant for existing homes had on house prices in Sydney up til October 1? Just a bit curious to see how this will pan out. I think this initiative directed at new homes is a positive for a place like Sydney. No doubt the developers will benefit but it should help to increase housing supply.
Shadow, what effect do you think this will have on Sydney house prices? What effect has the axing of the grant for existing homes had on house prices in Sydney up til October 1? Just a bit curious to see how this will pan out. I think this initiative directed at new homes is a positive for a place like Sydney. No doubt the developers will benefit but it should help to increase housing supply.
I think we can look to Sydney in the early 2000s or Melbourne more recently for precedents.
The early to middle years of a construction boom are likely to be accompanied by stronger economic growth, and higher house prices as incomes rise and employment generally is boosted by the surge in construction activity. With increased construction activity you get flow on benefits to builders and other trades, building suppliers, real estate agents, conveyancers, solicitors, banks, also furniture stores, homewares and consumer electronics etc. as homebuyers kit out their new homes. This boost in incomes and employment across the board should feed into rising house prices.
But what often happens at the latter stages of a construction boom is the developers get greedy, build too much stock, and we're left with an over-supply leading to falling house prices, as seen in Sydney post-2003 and Melbourne post 2009-10.
The USA and Ireland experienced similar outcomes during and after their recent construction booms (magnified to a much greater extent obviously).
I think we can look to Sydney in the early 2000s or Melbourne more recently for precedents.
The early to middle years of a construction boom are likely to be accompanied by stronger economic growth, and higher house prices as incomes rise and employment generally is boosted by the surge in construction activity. With increased construction activity you get flow on benefits to builders and other trades, building suppliers, real estate agents, conveyancers, solicitors, banks, also furniture stores, homewares and consumer electronics etc. as homebuyers kit out their new homes. This boost in incomes and employment across the board should feed into rising house prices.
But what often happens at the latter stages of a construction boom is the developers get greedy, build too much stock, and we're left with an over-supply leading to falling house prices, as seen in Sydney post-2003 and Melbourne post 2009-10.
The USA and Ireland experienced similar outcomes during and after their recent construction booms (magnified to a much greater extent obviously).
If mouzealot move beyond its single dimensions, it a realize that big credit the boom can be same effect.
It all a depend on what it want to a believe. And mouzealot be the shining beacon.
If it cannot quantify its impacts, all it left with is narrative.
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