Housing construction replaces mining boom

CommSec's recent report says housing construction and finance will determine new winners and losers across Australia

The mining boom is over, and the economic status of Australia’s states and territories is now being determined by housing construction, according to CommSec’s quarterly State of the States report.

“The mining construction boom is over, replaced by the home construction boom,” says Craig James, CommSec’s chief economist. “As a result, winners and losers will change across Australia, not just industries but also state and territory economies.”

Winners and losers

Despite mining waning, Western Australia continues to top the list, with population growth not only the highest in the nation but above decade-average levels, providing momentum in the housing sector.

In the latest quarter there was little to separate Western Australia from the second placed Northern Territory economy, which is being powered by commercial and engineering construction but is being checked by weaker growth in the housing sector. The main strengths are economic growth, business investment, unemployment and construction work.

New South Wales has jumped up the economic league table from equal fifth spot, leapfrogging Queensland and the Australia Capital Territory to become the third strongest economy. Momentum in NSW is building and underpinned by improvements in economic growth, business investment, population growth and dwelling starts – on the latter two indicators it leads other states, although the upturn for the economy is still in its relative infancy.

The ACT was the other big mover, falling from third-equal to sixth place, with weak confidence constraining retail and business spending and future economic performance. However, the territory came in second place on dwelling starts and also has the second strongest job market.

QLD, previously third-equal, is now fourth placed and doing relatively well on business investment, construction work and retail spending. Its weak spot is population growth, where it places seventh.

Victoria remains the fifth strongest economy with little change in its relative position against other states and territories on any of the key indicators. VIC is second strongest on housing finance and third strongest on population growth. According to James, home construction remains the “fundamental plank of support” of the Victorian economy but unemployment is rising.

As for Tasmania and South Australia, the outlook remains challenging. “The hope is that property investors will soon switch attention away from NSW and VIC to more affordable housing sectors,” says James.

SA, still in seventh place above TAS, is generally sixth or seventh on most of the key indicators, though is middle-ranked on construction work, assisted by a number of public sector projects.

TAS remains locked at the bottom of the Australian economic performance table, lagging behind other economies on five of the eight the indicators, although it has improved its relative position on unemployment and business investment.

Housing finance

“Housing finance is not just a lead indicator for real estate activity and housing construction, but also is a useful indicator of activity in the financial sector,” says James. “It would be useful to compare figures on commercial, personal and lease finance, but unfortunately trend data is not available for states and territories.”

In four of the states and territories – VIC, WA, NSW and the ACT – trend housing finance commitments are above decade averages. Even more encouragingly, commitments in February were above year ago levels in all states and territories, except for the NT.

WA climbed into top spot for housing finance, with the number of commitments 10% above the long-term average. Next strongest was VIC, up 6.1% on the decade-average.

NSW remains in third spot on housing finance, up 5.6% on the decade average followed by the ACT (up 1.9%). In March, NSW house prices were 15.6% higher than a year earlier and the price rise in VIC was 11%.

NT remains the weakest economy for housing finance, with trend commitments 21.6% lower than its decade average. Next weakest was SA with trend commitments down 13.3% on the decade average, but encouragingly commitments were up 8.1% from 2013.

Construction

“In all states/territories except Tasmania, construction work is higher than decade averages. And there remains a large gap between the strongest states (the resource states) and weakest states (Tasmania),” says James.

Overall, new construction work completed in TAS is 12.2% below its decade average. Next weakest is the ACT where construction work is 1.4% above decade averages, followed by VIC, up 9.9% on the decade average. By contrast, construction work done in NT was over 112% above its decade average followed by WA (up 60%) and QLD (up 49%).

In terms of annual growth rate, NT construction work done in the December quarter was up 34.1% on a year ago, followed by QLD and SA. Meanwhile, ACT construction work was 18.2% down on a year ago.

“The outlook for housing construction continues to strengthen, underpinned by low interest rates and strong demand by investors,” says James.

Dwelling starts

Dwelling starts are above decade averages in six of the states and territories and starts in five states and territories are above levels of a year ago. New housing starts in NSW are 39% above the decade-average and December quarter starts were up 18.1% from the year before.

In second spot was the ACT, with starts almost 29% above decade averages, followed by WA with starts up 23.4% on decade averages and NT, up almost 20%. At the other end of the scale, TAS dwelling starts were 35% below decade averages, while starts in the December quarter were 3.5% down on a year earlier.

VIC was up 1.6%, while QLD was up 0.8% and SA down 2.2% compared with decade averages. Encouragingly, QLD starts were 23.7% higher than a year ago, along with SA starts up 21.5% and WA starts up 19.2% from 2013.

According to James, starts are driven in part by population growth and housing finance and can affect retail trade, unemployment and overall economic growth. However any over-building or under-building in previous years can affect the level of starts.

Click here for the full report.