Home Construction

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<em>CoreLogic-RP Data</em> already appears set to report further dwelling price growth in October for Sydney, with prices once again up at a sprightly pace and moving another +$5,300 higher. </div>
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<div>There has been plenty of spirited debate in the media about what comes next for house prices in Australia.</div>
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<div>Macquarie has suggested that a housing market correction of -7.5 per cent could take place - beginning some time in 2016 before ending in 2017 - while Stockland's Mark Steinert disagrees and sees prices continuing to rise by +3% to +5% through next year.</div>
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<div>This pretty much tells you everything you need to know about short term property market predictions: one analyst thinks prices will rise, another thinks they'll fall!<br><br><strong><span style="text-decoration: underline;">Central Bank</span></strong><br><br>What about the role of the Reserve Bank and monetary policy settings?<br><br>Here's what central bank expert Sophia Rodrigues thinks:</div>
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<strong><span style="text-decoration: underline;">Long term focus</span></strong><br><br>Property owners would do well to retain a long term outlook rather than waste too much energy on short term dwelling price predictions, which are invariably a hit and miss affair at the best of times.</div>
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<div>As for the bubble/crash/correction calls which have continued over the past 15 years or so, Sydney median house prices now need to suffer an enormous correction - a gargantuan fall of $300,000 - even just to get back to where they were a couple of years ago in June 2013, let alone to actually correct from there. </div>
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<strong><span style="text-decoration: underline;">Market variances</span></strong><br><br>One thing that can be said with some certainty is that there will be significant variances across the Sydney property market.</div>
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<div>Outer suburban auction markets in Sydney have already turned in favour of buyers with clearance rates tanking fast in the west, south west, and north west sub-regions.<br><br>More stringent deposit requirements appear to be biting hard in the outer.<br><br>On the other hand clearance rates have remained relatively elevated for now in the eastern suburbs, the inner west, lower north shore, northern beaches, and the city &amp; inner south.<br><br>
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<div>Higher density markets will also almost certainly fare less happily than the metropolitan averages due to a looming stock overhang.</div>
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<span>In terms of other market drivers, Sydney presently has a vacancy rate of around 1.7% but with plenty of supply now in the pipeline, while the unemployment rate for Greater Sydney is only 5.1%.</span><br><br><span>Implied yields on cash rate futures contracts are pricing a 100% chance of an interest rate cut to just 1.75% by April 2016.</span><br><br><span>This morning's Building Activity data release will shed more light on dwelling commencements and completions around the states.</span><br><br><span>Expect to see both commencements and completions respectively at close to their highest ever levels.</span>
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<p><span><em>PETE WARGENT is the co-founder of <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blogger</a>.</em><br></span></p>
<p><em>His latest book is <a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>.</em></p>
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pwargent-M4siyDbqQY

October housing prices: Pete Wargent

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<p class="x_Default"><span>EXPERT OBSERVER</span></p>
<p class="x_Default"><span>With home prices falling, access to finance more difficult and fewer people now entering the country, the number of new homes approved for construction has declined.</span></p>
<p class="x_Default"><span>ABS data released today show that 16,447 homes (seasonally adjusted) were approved for construction in August – a level that is 9.4 per cent lower than in July and 13.6 per cent lower than in August 2017. The latest level of approvals is the lowest since October 2016.<span class="Apple-converted-space"> </span></span></p>
<p class="x_Default">The new home building sector has been cooling modestly over the past year after reaching all-time high levels of activity during 2015 through to 2017.</p>
<p class="x_Default">Just as apartment construction drove the increase in home building to record levels, approvals data is signalling that apartments will lead the decline.</p>
<p class="x_Default"><span>Approvals for units fell by 17.2 per cent in August, to be 23.7 per cent lower than a year earlier.</span> </p>
<p class="x_Default"><span>The key risks that we’re watching relate to credit conditions and population growth.</span></p>
<p class="x_Default">Constraints on the availability of finance through APRA and increased prudential constraints by banks are restricting investment in new homes.</p>
<p class="x_Default">Population growth has slowed since the government introduced stricter visa requirements last year. As global economic conditions improve, skilled migrants who might otherwise consider immigrating to Australia could be more inclined<span class="Apple-converted-space"> </span>to look to other similar advanced economies where entry requirements are less restrictive.</p>
<p class="x_Default">The outlook for detached house building is better than for units, with the latest approvals data indicating declines likely to be much more modest,” added Ms Hopkins.</p>
<p class="x_Default">Detached house approvals declined by 1.7 per cent in August and are a modest 4.2 per cent lower than a year previously,” concluded Ms Hopkins.</p>
<p class="x_Default"><span>Total seasonally adjusted dwelling approvals in August fell across the eastern seaboard states: Victoria (-12.0 per cent); Queensland (-8.4 per cent), and; New South Wales (-2.7 per cent). Tasmania experienced the largest monthly fall (-18.6 per cent). Elsewhere approvals increased: Western Australia (+14.7 per cent) and South Australia (+9.6 per cent). </span></p>
<p class="x_Default"><span>In trend terms, total dwelling approvals in August increased by 1.5 per cent in the Northern Territory and was virtually unchanged (up by 0.1 per cent) in the Australian Capital Territory.</span></p>
<p class="x_Default"><span>Diwa Hopkins is an economist at the Housing Industry Association.</span></p>
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jrobinson-rf4aSBido9

Fewer homes approved for construction: HIA

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<p><span>According to the minutes of the Monetary Policy Meeting of the Reserve Bank Board,</span><span style="line-height: 1.3em;"> economic growth in Australia's major trading partners had remained close to its long-run average, although growth had eased a little in the June quarter.</span></p>
<p>The forecast for growth in 2015 and 2016 had been revised down slightly, but growth was expected to remain around its long-run average. The increase in global industrial production had slowed over the past year or so, particularly in the Asian region, and this had contributed to lower commodity prices. Members noted that, as a result, the forecast for Australia's terms of trade had been revised down since that presented at the May meeting. Globally, core inflation had been stable in year-ended terms over recent months at rates below the targets of most central banks. Monetary conditions had remained very accommodative.</p>
<p>In China, GDP growth had picked up in the June quarter to be 7 per cent in year-ended terms. However, growth in a range of other indicators of activity had moderated in the first half of 2015. The outlook for Chinese steel demand remained subdued. This had contributed to lower forecasts for iron ore prices, although they were expected to remain above levels seen earlier in the year. Members reviewed evidence that showed conditions in the residential property markets in China had improved further in recent months, but noted that this had not translated into a pick-up in residential property investment outside the largest cities. They observed that downside risks stemming from the weak property market and constraints on local government funding for infrastructure investment had receded somewhat, partly in response to policy measures designed to address these areas. The recent volatility in Chinese equity markets was not expected to have a significant direct effect on consumption, given the relatively limited direct exposure of households to equities.</p>
<p>Economic activity in Japan appeared to have been recovering gradually, but had yet to surpass the levels seen before the increase in the consumption tax in 2014. Nevertheless, the labour market remained relatively tight, wage growth had been higher than a year earlier and the Bank of Japan expected inflation to pick up to the 2 per cent target by around mid 2016. Across the rest of east Asia, output growth looked to have been below average in the June quarter, owing to weakness in both domestic demand and exports. In India, growth in industrial production had strengthened over the past year and a range of indicators pointed to further growth in investment.</p>
<p>In the United States, the economy had returned to moderate growth in the June quarter, following temporary weakness earlier in the year. Business investment was around average as a share of nominal GDP and recent indicators were consistent with above-trend growth in consumption in the period ahead. Members observed that lower oil prices should have a net positive effect on output growth in the United States, while recognising that the oil and gas sector had been adversely affected by the lower prices for its output and that households had saved some of the gains from lower fuel prices. Employment growth had strengthened in the June quarter and the unemployment rate had continued to trend lower, while wage growth had been surprisingly low and underlying inflation remained below the Federal Reserve's target.</p>
<p>The gradual recovery in the euro area had continued, supported by very accommodative monetary policy and low oil prices. Output growth appeared to have picked up in the first half of 2015 and unemployment rates in most countries continued to record modest falls. Members noted that there was considerable variation in outcomes across the euro area; sentiment had been rising in a number of countries but had declined in others, most notably Greece. Core inflation had stabilised in year-ended terms, but remained well below the target of the European Central Bank (ECB). Developments in Greece appeared to date to have had little effect on economic conditions or confidence in the region as a whole.</p>
<h3>Domestic Economic Conditions</h3>
<p>The Board's discussion of the domestic economy commenced with the observation that GDP growth over the next couple of years was expected to be slightly lower than forecast in May, although the revision was minor relative to the usual range of uncertainty. A downward revision to population growth had contributed to lower forecast growth in consumption and non-mining business investment. The forecasts for growth in public demand and business investment had been revised lower in light of new data. In contrast, the recent exchange rate depreciation had led to an upward revision to net exports. Aggregate growth was expected to remain moderate for a time before strengthening. Members recognised that the period of significant structural change for the Australian economy associated with the winding down of the mining investment boom would continue for some time.</p>
<p>Members noted that labour market conditions had been a little better than expected over the previous few months, although spare capacity still remained. The unemployment rate had been around 6 per cent in June, after having stabilised over the course of the past year, in contrast to earlier expectations that the unemployment rate would continue to drift higher. This stabilisation was consistent with both stronger-than-expected demand for labour and lower-than-expected population growth. Members discussed the role that low wage growth had played in the pick-up in the employment-to-population ratio over the past year. They noted that the ABS measure of firms' job vacancies was consistent with the unemployment rate remaining around current levels or even declining a little further in the months ahead. Other forward-looking indicators suggested moderate growth in employment in the near term.</p>
<p>The unemployment rate was expected to be a little lower than previously forecast, despite the revised growth profile, partly because the unemployment rate had been lower than expected in the June quarter, and partly because the revision to forecast aggregate demand had been broadly matched by a revision to forecast growth of the economy's productive capacity as a result of lower population growth. However, members noted that there would always be uncertainty about the balance between the growth of aggregate demand and supply.</p>
<p>Members noted that the key forces operating on the domestic economy had remained much as they had been for some time. Consumption growth had picked up a little since 2013 and the most recent data on retail sales and liaison information were consistent with the momentum in consumption growth being sustained. In addition, measures of consumer sentiment had remained around average levels. The forecast for consumption growth implied a further gradual decline in the saving ratio in an environment of continued low wage growth. The uncertainties around future consumption and saving decisions of households were discussed.</p>
<p>Housing market conditions had remained strong, supported by low interest rates. House price inflation continued to be strongest in Sydney and Melbourne, while price growth for apartments in these cities had been less rapid, consistent with increased construction of higher-density housing. Outside the two largest cities, housing price growth remained weak and prices had declined in some segments. Forward-looking indicators, such as building approvals and loan approvals for new dwellings, pointed to further strength in dwelling investment in coming quarters.</p>
<p>Housing credit growth had been stable over recent months at around 7 per cent on an annualised basis, while growth in credit to investors in housing had been steady at a bit above 10 per cent. Members noted that growth in credit to investors had been revised up as a result of a reclassification of one bank's loans, but that aggregate growth in housing credit had been unaffected. Members also noted that the Australian Prudential Regulation Authority (APRA) had announced an increase in the amount of regulatory capital the major banks and Macquarie Bank were required to hold for their residential mortgage exposures, to take effect in 2016. A number of banks had also announced increases in the standard variable rate for investor-related housing loans for new and existing borrowers of at least 25 basis points, and there had also been a tightening in lending conditions in this sector.</p>
<p>Non-mining business investment was expected to remain subdued for some time. Although little new information had been received since the previous meeting, survey measures of business conditions, confidence and capacity utilisation had been more positive. Members observed that survey measures of business conditions had been strongest for household and business services, which were also the sectors that had experienced the strongest employment growth over recent years. In contrast, business conditions and employment had been weaker in those sectors of the economy mainly involved in goods production and distribution. Members also noted that, on average, household services used significantly lower amounts of capital per worker than goods-related sectors and were not as well represented in the capital expenditure survey, which by itself implied a weaker forecast profile for non-mining business investment for 2015/16. Members acknowledged that there remained considerable uncertainty around the timing and strength of the recovery in non-mining business investment.</p>
<p>Export volumes appeared to have declined in the June quarter following a strong increase in the previous quarter. The weakness in resource exports partly reflected some temporary factors affecting coal and liquefied natural gas production, but a moderation in demand from China may have contributed to lower iron ore exports. Net service exports had made a strong contribution to output growth over the past year, supported by the earlier depreciation of the exchange rate.</p>
<p>Inflation in the June quarter had been broadly as expected and domestic inflationary pressures had remained well contained. The consumer price index had increased by 0.8 per cent in the June quarter (in seasonally adjusted terms) and by 1.5 per cent over the year. The quarterly outcome reflected a rebound in the price of fuel, although it was still around 10 per cent lower than a year earlier. The various measures suggested that underlying inflation was around ½ per cent in the June quarter and 2¼ per cent over the year.</p>
<p>Members noted that spare capacity in the labour market and the low growth of labour costs were reflected in low inflation for market services, while inflation in the cost of new dwellings had remained strong, particularly in Sydney. Domestic cost pressures were expected to remain contained over the forecast period. The prices of tradable items (excluding volatile items and tobacco) had declined modestly in the June quarter and over the preceding year. However, members observed that the recent depreciation of the Australian dollar would place further upward pressure on the final prices of tradable items over the next few years, which had led to a slight upward revision to the inflation forecast. Underlying inflation was expected to be around 2½ per cent over the forecast period, consistent with the inflation target.</p>
<h3>Financial Markets</h3>
<p>The Board's discussion of financial markets commenced with a focus on the US Federal Reserve's monetary policy. While policy was unchanged at the July meeting of the Federal Open Market Committee, recent commentary from Fed officials continued to suggest that policy tightening could start at the September meeting, whereas financial markets had only fully priced in a rate increase by December. Members noted that when the Fed actually delivered its first interest rate increase in nine years, there was likely to be a sizeable market impact notwithstanding how well telegraphed the change in policy had been. It was likely that financial market volatility would increase and the US dollar could appreciate further, including against the Australian dollar and a number of other currencies in Asia.</p>
<p>The US dollar had appreciated over the past month, particularly against the currencies of commodity exporters, including those of Australia as well as Canada and New Zealand, where the central banks had eased policy in July. The Australian dollar had depreciated by 5 per cent against the US dollar and by 4 per cent on a trade-weighted basis over the past month, taking the exchange rate to around its lowest level since 2009 on both measures. The New Zealand dollar had also depreciated sharply against the US dollar to a level that was around 15 per cent lower than in late April.</p>
<p>In sharp contrast, the Chinese renmimbi had continued to be little changed against the US dollar. Chinese international reserves had declined by around 7 per cent in recent quarters to help achieve stability against the US dollar in the face of an outflow of capital. Chinese equity markets remained volatile, despite measures introduced by the Chinese Government in early July that had steadied the Chinese equity market for a time. Large falls in Chinese equity prices had occurred again more recently, resulting in cumulative falls from recent peaks being back around 30 per cent, although equity prices remained 70 per cent higher than a year earlier.</p>
<p>Equity prices in the advanced economies had generally been little changed over the past month. This included the euro area, where equity prices had been more volatile but had recovered their earlier falls when Greece had moved closer to an agreement with its creditors. Australian equity prices had risen since the end of June.</p>
<p>Turning to developments in Greece, members noted that the Greek Government and its official sector creditors had reached an agreement to start negotiations on a new three-year bailout program. Much of the program would be used to refinance existing obligations as they fell due, as well as to recapitalise the Greek banks. The Eurogroup had arranged a €7 billion bridging loan to enable Greece to meet its short-term commitments, including clearing its arrears at the International Monetary Fund and repaying a maturing bond held by the ECB. Greek banks had reopened on 20 July following the ECB's decision to increase its emergency lending assistance, but capital controls remained in place.</p>
<p>Government bond yields in the major economies had mostly fallen over the past month, mainly fluctuating alongside market concerns about Greece. Bond yields in Australia had largely tracked those in the United States over the past month. With state issuance of bonds projected at modest levels, spreads and yields on state government debt remained low.</p>
<p>Australian financial market pricing indicated no likelihood of an easing of monetary policy at the present meeting.</p>
<h3>Considerations for Monetary Policy</h3>
<p>Global economic conditions were expected to continue to be supported by the lower level of oil prices and accommodative global financial conditions. Global industrial production growth had eased further this year, particularly in the Asian region, and this had contributed to lower commodity prices. Growth of Australia's major trading partners was expected to be around its long-run average over the next two years. Members observed that the downside risks to the outlook for Chinese growth identified over the past year had receded somewhat, although the Government's policy response to the recent volatility in Chinese equity markets had clouded the medium-term economic outlook. Uncertainties arising from the expected start of monetary policy tightening in the United States had moved into sharper focus.</p>
<p>Domestically, economic activity had generally been more positive over recent months. Very low interest rates were continuing to support strong growth in dwelling investment and consumption, and the further depreciation of the Australian dollar was expected to impart stimulus to the economy through stronger net exports. Although surveys of business investment intentions and non-residential building approvals suggested that non-mining business investment would remain subdued for some time, members noted that non-mining business profits had increased, business conditions were clearly above average and businesses had been hiring more labour, partly encouraged by very low wage growth. As a result, employment had risen as a share of the working age population and the unemployment rate had been relatively stable, in contrast to earlier expectations of a further increase. The recent data on inflation were largely as expected.</p>
<p>Members noted that output growth was expected to pick up gradually from its below-average pace over the past year to exceed 3 per cent in 2017. The forecast for the unemployment rate had been revised lower since the previous forecasts had been presented. The further depreciation of the Australian dollar had resulted in a slight upward revision to the forecast for inflation. Nonetheless, inflation was expected to remain consistent with the target over the forecast period given that domestic cost pressures were likely to remain well contained.</p>
<p>Credit was growing moderately overall, with growth in lending to the housing market broadly steady over recent months. House prices continued to rise strongly in Sydney and Melbourne, but trends had been more varied in a number of other cities. Members observed that recent responses by banks to the suite of measures implemented by APRA in respect of lending to investors in housing, including a tightening in lending conditions, would be expected to reduce the risks relating to the housing market, although it was too early to gauge their full effects.</p>
<p>Members noted that an accommodative monetary policy setting remained appropriate given the forecasts, while observing that the Australian economy had been adjusting to the shift in activity in the resources sector from the investment to the production phase. This shift had been accompanied by significant declines in key commodity prices and was being assisted by the depreciation of the exchange rate over recent months.</p>
<p>In light of these considerations, the Board judged that it was appropriate to leave the cash rate unchanged. New information about economic and financial conditions would continue to inform the Board's assessment of the outlook and determine whether the current stance of policy remained appropriate to foster sustainable growth and inflation consistent with target. </p>
<h3>The Decision</h3>
<p>The Board decided to leave the cash rate unchanged at 2.0 per cent.</p>
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jchancellor-FAypfDUnLy

Very low interest rates supporting home construction, investments: RBA

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<p>The Australian Institute of Architects has opened voting for the public to choose from 14 shortlisted residential projects to celebrate World Architecture Day on October 3.</p>
<p>Selected by a national jury, the 14 projects range from discreet alterations to grand works of art, showcasing the best residential architecture – both new builds and alterations and additions – from around the country.</p>
<p>Voting for the National Architecture Awards' 2016 People's Choice Award is open until October 27.</p>
<p>The winning project will be announced at the National Architecture Awards ceremony on November 3 in Sydney along with all the winners as chosen by the panel of judges.</p>
<p>People who choose to cast their vote also stand a chance to win prizes by writing a short summary in 25 words justifying their choice.</p>
<p>More information on the 2016 National Architecture Awards and access to voting in the People's Choice Award is available via <a href="https://wp.architecture.com.au/awards-2016/" target="_blank">wp.architecture.com.au/awards-2016/</a> </p>
<p>Projects vying for the vote are:</p>
<p>Camino House (WA) by Bosske Architecture (above)</p>
<p>Chapel Hill House (QLD) by Reddog Architects Pty Ltd</p>
<p>Darlinghurst Rooftop (NSW) by CO-AP (Architects)</p>
<p>Deepdene House (VIC) by Kennedy Nolan</p>
<p>Deepwater (NSW) by Tobias Partners</p>
<p>Five Yards House (TAS) by Archier</p>
<p>Granville Residence (QLD) by Richard Kirk Architect</p>
<p>House in Hamilton (QLD) by phorm architecture + design with Tato Architects</p>
<p>Indigo Slam (NSW) by Smart Design Studio</p>
<p>Jenny's House (TAS) by Rosevear Stephenson</p>
<p>Mills, The Toy Management House (VIC) by Austin Maynard Architects</p>
<p>Point Lonsdale House (VIC) by NMBW Architecture Studio</p>
<p>Project Zero (QLD) by BVN</p>
<p>Rosalie House (QLD) by Owen Architecture</p>
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jonathanchancellor-7SQnKwU6yx

Vote for your favourite from Australia's best homes

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<p>Dwelling investment appears to have peaked earlier than previously anticipated, according to the RBA's latest statement on monetary policy.</p>
<p>"Although the significant pipeline of work still to be done should mean that the level of residential construction activity remains high over the next year or so, dwelling investment is not likely to contribute to GDP growth over the forecast period," it advised. </p>
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<p>Bank liaison with developers indicates that demand for off-the-plan apartments in the major east-coast cities has moderated, reflecting weaker demand from foreign buyers and domestic investors.</p>
<p><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/11/10/growth.jpg" alt="" style="font-size: 12.16px;"></p>
<p>Developers’ access to bank finance – which is secured before obtaining a building approval – has tightened over the past year or so, particularly in areas where there have been very large increases in the supply of apartments, such as inner-city Brisbane, the statement noted.  </p>
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<p>The statement acknowledged one of the key sources of uncertainty for the forecasts is the outlook for the labour market.  </p>
<p>It also suggested weaker-than-expected growth in housing prices or changes in expectations about the likely path of interest rates could also lead to weaker consumption growth than is currently forecast.</p>
<p>The statement sets out the Bank's assessment of current economic conditions, both domestic and international, along with the outlook for Australian inflation and output growth.</p>
<p>It noted conditions in established housing markets have eased in recent months.</p>
<p><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/11/10/Price%20Growth.jpg" alt=""></p>
<p>"The Sydney market has slowed noticeably; auction clearance rates have fallen and housing price growth has been relatively subdued over the past few months, although this follows very strong increases in housing prices over the second half of 2016 and early 2017."</p>
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<p>Conditions remain strongest in Melbourne; vendor discounts and days on market continue to point to very strong conditions, although housing price inflation and the auction clearance rate have declined a little.</p>
<p>"The more pronounced slowing in the Sydney housing market relative to Melbourne may reflect the higher share of investors in the Sydney market; the flow of loan approvals to these buyers has slowed since the beginning of the year."</p>
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<p>Housing prices in Sydney are also higher, so affordability could be more of a constraint than in Melbourne.</p>
<p>Higher migration flows to Victoria, both from overseas and interstate, are also supporting the demand for housing, it noted.</p>
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<p>Housing prices have declined a little further in Perth, where the rental vacancy rate has increased to its highest level since 1990, driven by the slowing in population growth.</p>
<p><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/11/10/Vacancy.jpg" alt=""></p>
<p>In Brisbane, apartment prices have been little changed in recent months following earlier declines, while detached house prices have increased. </p>
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<p>The bank noted overall household indebtedness is high and debt levels relative to income have continued to edge higher because household credit growth has continued to outpace income growth.</p>
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<p>"Steps taken by regulators have seen the growth in riskier types of lending to households moderate, but some risks remain.</p>
<p>"For example, a highly indebted household sector is likely to be more sensitive to changes in income or wealth, which could have implications for consumption growth.</p>
<p>"Also, consumption growth could be weaker for a time if indebted households choose to pay down debt more quickly rather than spend additional income."</p>
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j.ballantyne1990-6AQqhLzZaK

Dwelling investment has peaked earlier than previously anticipated: RBA 

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<p>In Victoria, the cost of constructing a house accelerated by 5% in 2017 according to the CoreLogic CHIP index December quarter results. According to the measure, this is now higher than the national pace of 4% across Australia, and the highest growth rate of all of the states for the year.</p>
<p>Several factors have contributed to this rapid increase in construction costs in the state. Namely, Victoria’s strong housing growth in the last few years which has delivered increased demand for housing construction materials and labour as developers seek to capitalise on high capital growth rates.</p>
<p>Along with increases in building input values and labour, CoreLogic development data indicates that 11.1% of residential subdivision commencements across Victoria were located in the state’s regional areas. Furthermore, 48.6% of residential subdivisions commenced on the fringes of the Melbourne metropolitan area and included Hume, Whittlesea and Wyndham. As a result, higher freight costs are likely to be built into the delivery of materials to regional sites.</p>
<p>Note: The CoreLogic CHIP index uses a standard house model over time to isolate changes in the cost of building materials and labour that go into constructing a house. CoreLogic tracks a separate index for Australia, New South Wales, Victoria, Queensland, South Australia and Western Australia.<br><br>The National CHIP index rose 4% over 2017 and has diverged significantly from growth in CPI since around 2003. Since this time, inflation has averaged 0.62%, while quarterly nominal growth in the building price index has averaged 1.1%. Furthermore, as subdued wages have maintained a low inflationary environment in Australia, the gap between building costs and general living costs have increasingly diverged. Eliza Owen said, “This suggests that inflation accounts less and less for the growth in the CHIP index.”</p>
<p>CoreLogic’s construction and development data has been powered by the acquisition of Cordell in 2015. The CHIP index began in 1990. The Queensland CHIP index has grown the highest of the states since 1990, at 190%. Particular divergence occurred between Queensland and the rest of Australia from the time of the 2011 Queensland floods, when rebuilding accelerated building costs in the state, as well as inflation generally. Find the full CHIP index report for Q4 here.</p>
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<p><span class="s1">Eliza Owen is </span><span class="s2">Commerical Property Research Analyst with ‎CoreLogic and can be contacted <a href="https://www.corelogic.com.au/" target="_blank"><span class="s3">here</span></a>.</span></p>
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House construction cost in Victoria rise five percent in 2017: Eliza Owen

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<p class="x_MsoNormal">New home building held up well during the September 2018 quarter despite the tougher market conditions, according to Master Builders Australia’s chief economist Shane Garrett. </p>
<p class="x_MsoNormal">The ABS figures on Construction Work Done released this morning indicate that new residential building work eased back by 1.8% during the quarter but was still some 4.7% higher than a year earlier. </p>
<p class="x_MsoNormal">“Surprisingly, the apartment/unit side of the market put in a strong performance and came close to surpassing its busiest quarter on record. Work on detached houses fell by 3.2% compared with the previous quarter,” Shane Garrett said. </p>
<p class="x_MsoNormal">“The performance of residential building has proven more resilient than expected in light of the unfolding credit crunch and less favourable conditions in Australia’s largest housing markets,” he said. </p>
<p class="x_MsoNormal">“Going forward, we do expect the tougher financial environment to take its toll on the volume of new home building over the next few years.</p>
<p class="x_MsoNormal">"Larger apartment projects will probably see the biggest reduction,” Shane Garrett said. </p>
<p class="x_MsoNormal">Today’s figures also indicate that non-residential building declined by 2.4% during the September 2018 quarter and that engineering construction fell by 4.5%. </p>
<p class="x_MsoNormal">“With the federal Budget set be delivered earlier next year, it is important that it includes measures to support our sector’s capacity to meet the building needs of a steadily growing population,” Shane Garret said.</p>
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New home building holds up

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<p>EXPERT OBSERVATION</p>
<p>Dwelling approvals fell 15.5% in February, unwinding a 19.1% jump in February that reflected a big spike in high rise approvals. That was in line with Westpac's forecast but a touch weaker than the consensus view of a 12.5% decline.</p>
<p>Headline moves over the last two months have been driven by 'high rise' units with approvals in the segment more than doubling between January and February and nearly halving again between February and March. Approvals in this segment are still well above Jan's extreme low and about 10% above the average level over the three months to January.</p>
<p>Outside of the high rise segment, the underlying trend looks to be weak. Total approvals ex high rise (covering both detached houses and mid-low rise) looks to be down a further 2% in the month following a 4% fall in February and down around 19% year. Private detached house approvals declined 3.2% month, to be down 18.3% year. Mid-low rise unit approvals look to have risen slightly by around 1% in the March month but are still down by around 20% year.</p>
<p>The state detail also points to a soft underlying tone. The unwinding high rise spike was concentrated in NSW (–27% month, –23% year) and Vic (–27% month, –36% year). Excluding high rise, NSW posted a 10% month gain in the month but was coming off a much weaker January with approvals still down 7.7% on their Dec level. Vic approvals ex high rise declined 1.9% month but is down a milder 3.5% compared to Dec. Approvals declined the other major eastern states, the slide over the last year now looking brutal in Qld (–2.4% month, –35.9% year); much milder in SA (–2% month, –11.5% year). WA bucked the wider trend this month, posting a surprisingly strong 4.8% month gain to be up 20.7% year, very much against the odds.</p>
<p>The total value of renovation approvals fell 8.7% month to be up 3.6% on a rolling three month average basis, a reasonable uptrend still in place. The state detail continues to point to gains coming through more strongly in Qld and WA.</p>
<p>The total value of non res building approvals rose 2.1% month but is still down 0.5% year on a rolling three month basis. Conditions remain mixed across both segments but the state split points to slowing in NSW and Vic partially offset by gains in Qld and WA.</p>
<p>Overall the March dwelling approvals update again points to weakening underlying momentum, highlighting downside risks to the near term outlook for new dwelling construction. So far the weakness mostly just cancels out the lift from the February high rise spike. However clearly there are downside risks to the outlook if the weak momentum continues in coming months, particularly if we also start to see approved high rise projects get put on hold.</p>
<p><em><strong>MATTHEW HASSAN</strong> is a Senior Economist for Westpac.</em></p>
<p><em>Download the full report: <a href="https://westpaciq.westpac.com.au/wibiqauthoring/_uploads/file/Australia/2019/May/er20190503BullDwellApprovMar.pdf" target="_blank">Australian dwelling approvals March' (PDF 327kb)</a>.</em></p>
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Matthew_Hassan-HHWHptmrw4

Dwelling construction forecast is weak: Westpac's Matthew Hassan 

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<p>GUEST OBSERVATION</p>
<p>Regulation of the Australian building industry is broken, according to the <a href="https://www.industry.gov.au/data-and-publications/building-confidence-building-ministers-forum-expert-assessment" target="_blank">Shergold-Weir report</a> to the <a href="https://www.industry.gov.au/regulation-and-standards/building-and-construction/building-ministers-forum" target="_blank">Building Ministers’ Forum</a> (BMF).</p>
<p>"[…] we have concluded that [the] nature and extent [of problems] are significant and concerning. The problems have led to diminishing public confidence that the building and construction industry can deliver compliant, safe buildings which will perform to the expected standards over the long term."</p>
<p>You can say that again.</p>
<p>Just one of the issues identified in the report, combustible cladding, <a href="https://www.theaustralian.com.au/national-affairs/hit-list-identifies-10000-potential-grenfellstyle-buildings/news-story/65aaf99088ead16bd3e0947a6e242770" target="_blank">could affect over 1,000 buildings across Australia</a>. An unknown proportion of these are tall (four storey and above) residential strata buildings. Fears of rectification costs are starting to have <a href="https://www.afr.com/real-estate/melbourne-apartment-buildings-face-extra-scrutiny-over-combustible-cladding-20190205-h1avoi" target="_blank">severe impacts on the apartment market</a>.</p>
<p>The cost of replacing combustible panels at the Lacrosse Apartments in Melbourne, which caught fire in 2014, will be <a href="https://theconversation.com/lacrosse-fire-ruling-sends-shudders-through-building-industry-consultants-and-governments-112777" target="_blank">at least A$5.7 million, plus A$6 million or so in consequential damages</a>. The total cost of replacing combustible panels across Australia is unknown at this point, but is likely to run to billions of dollars.</p>
<p>The <a href="https://www.industry.gov.au/data-and-publications/building-confidence-building-ministers-forum-expert-assessment" target="_blank">Shergold-Weir report</a> identifies a catalogue of other problems, including water leaks, structurally unsound roof construction and poorly constructed fire-resisting elements. Faults appear to be widespread.</p>
<p>A <a href="https://cityfutures.be.unsw.edu.au/documents/44/Governing_the_Compact_City_EXECUTIVE_SUMMARY.pdf" target="_blank">2012 study by UNSW City Futures</a> surveyed 1,020 strata owners across New South Wales and found 72% of respondents (85% in buildings built since 2000) knew of at least one significant defect in their complex. Fixing these problems will cost billions more.</p>
<p>Regulatory failures are not only “diminishing public confidence”, they have a direct impact on the hip pockets of many Australians who own a residential apartment. In short, building defects resulting from lax regulation are a multi-billion dollar disaster.</p>
<p><strong>How could authorities let this happen?</strong></p>
<p>A web of regulations and standards enacted by governments cover construction in Australia, but this regulation is centred on the <a href="https://ncc.abcb.gov.au/ncc-online/About" target="_blank">National Construction Code</a> (NCC). The <a href="https://www.abcb.gov.au/ABCB/The-Board" target="_blank">Australian Building Codes Board</a> (ABCB), a body controlled by the Building Ministers’ Forum, manages the NCC. The ABCB board comprises appointed representatives from the Commonwealth plus all the states and territories and a few industry groups.</p>
<p>It is such a complicated system that it is hard to identify any government, organisation or person that is directly responsible for its performance.</p>
<p>The NCC is supposed to create “benefits to society that outweigh costs” but it appears the ABCB may have been more focused on the need to “consider the competitive effects of regulation” and “not be unnecessarily restrictive” (Introduction to NCC Volume 1).</p>
<p>The BMF’s <a href="https://www.industry.gov.au/sites/default/files/bmf-communique-8-february-2019.pdf" target="_blank">February 8 communique</a>, issued <em>after</em> the <a href="https://www.industry.gov.au/sites/default/files/bmf-communique-8-february-2019.pdf" target="_blank">fire in the Neo200 building</a> in Melbourne, is straight out of the Yes Minister playbook:</p>
<p>"Ministers agreed in principle to a national ban on the unsafe use of combustible ACPs (aluminium composite panels) in new construction, subject to a cost/benefit analysis being undertaken on the proposed ban, including impacts on the supply chain, potential impacts on the building industry, any unintended consequences, and a proposed timeline for implementation. Ministers will further consider this at their next meeting [in May this year]."</p>
<p>This suggests the ministers are more concerned about possible impacts on the panel suppliers and the building industry than the consumer. The earliest a ban can take effect is in May. In the meantime, anecdotal evidence suggests buildings are still being clad in combustible ACP.</p>
<p>Thanks to the journalist Michael Bleby, we know <a href="https://www.afr.com/real-estate/governments-failed-to-act-on-warnings-of-combustible-cladding-dangers-20190226-h1br6n" target="_blank">governments and the ABCB failed to act in 2010</a> when presented with evidence that combustible ACP was not only a danger, but was also being widely used on tall residential buildings.</p>
<p>Bleby quoted ABCB general manager Neil Savery as saying neither his organisation, nor any of the states, was aware that builders were using the product incorrectly.</p>
<p>We also know that panel manufacturers, including the Australian supplier of Alucobond, actively lobbied building ministers. At the July 2011 BMF meeting, the ACT representative effectively vetoed an ABCB proposal to issue an advisory note on the use of combustible ACP.</p>
<p>We are entitled to ask why the ABCB and its staff, or the downstream regulators and their staff, did not know about serious fire problems with ACP that the technical press <a href="http://www.cookeonfire.com/pdfs/eurisolgreenreport.pdf" target="_blank">identified as long ago as 2000</a>. The answer will be of particular interest to residents of tall apartment buildings clad in these panels, all of whom are now living with an active threat to their safety.</p>
<p><strong>Consumers are owed better protection</strong></p>
<p>While both Labor and Coalition governments have worked to improve consumer protection for people buying consumer goods, their record on housing, particularly apartments, is awful. While a consumer can be reasonably sure of getting restitution if they buy a faulty fridge, <a href="https://www.smh.com.au/business/consumer-affairs/victims-suffer-as-combustible-cladding-crisis-rages-on-20190402-p519yy" target="_blank">no such certainty exists if they buy a faulty house or apartment</a>.</p>
<p>At the moment, the NCC does not have any focus on providing protection for buyers of houses or apartments. There are few requirements for the durability of components and astonishingly weak requirements for waterproofing. Under the NCC and its attached Australian Standards, particularly AS 4654.1 and 2-2012, a waterproof membrane could last, in practice, five minutes or 50 years.</p>
<p>Given the magnitude of the economic loss, it would be appropriate for the BMF and ABCB board to publicly admit they have failed. Since their appointments in November 2017 and January 2013 respectively, neither ABCB chair John Fahey nor Savery as general manager has remedied the situation. The Shergold-Weir report has not been implemented and the combustible cladding issues remain unresolved. It would be reasonable for Fahey to step down and for Savery to consider his future.</p>
<p>The next federal government should consider what further action should be taken, particularly in relation to individuals on the BMF and within the ABCB involved in the 2010-2011 decision not to issue the proposed advisory note on the use of ACP. Since the ABCB does not publish minutes and none of its deliberations are in the public domain no one knows what actually happened or who did what.</p>
<p>The new board should consider moving residential apartment buildings (Class 2 buildings in the NCC classification) from Volume 1 of the NCC to Volume 2, which controls detached and semi-detached housing. Volume 2 should then have as its overriding objective the protection of consumers.</p>
<p>The downstream regulators should focus on requiring builders to deliver residential buildings with no serious faults and providing simple mechanisms for redress if they don’t.</p>
<p>Surely this is not too much to ask.<em><img src="https://counter.theconversation.com/content/113115/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;"></em></p>
<p><em><strong>Geoff Hanmer</strong>, Adjunct Lecturer in Architecture, UNSW</em></p>
<p><em>This article is republished from <a href="http://theconversation.com" target="_blank">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/housing-with-buyer-protection-and-no-serious-faults-is-that-too-much-to-ask-of-builders-and-regulators-113115" target="_blank">original article</a>.</em></p>
<p><em>This article has been updated to correct a reference to NCC volumes 1 and 2 – the latter controls detached and semi-detached housing.</em></p>
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