Development & Construction Industry Performance Report QUEENSLAND heading industry growth Queensland s (QLD) development industry is now outperforming

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1 Development & Construction Industry Performance Report SNAPSHOT At a glance We have created a quick glance guide to help you identify key market indicators within this report. DECLINE Each icon reveals a performance snapshot of the information contained in each section. HOUSING FINANCE & APPROVALS Housing Demand & Supply Tracks the supply of new housing relative to the underlying demand generated through population growth. 1. Population Growth Components: QLD (Annual, original) 2. Over/Under Building Estimates: QLD (Annual, original) 3. Home Affordability: Brisbane (Quarterly) Non-Residential Activity DECLINE Tracks the volume of residential building approvals as well as lending for new housing. 1. Loans for Owner Occupier Home Purchase: QLD (Moving quarterly, original) 2. Approved Dwellings: QLD (Moving quarterly totals, seasonally adjusted) Tracks the value of non-residential building approvals. 1. Value of Private Sector Non-Residential Building Approvals: QLD (Moving annual totals, original) Industry Output & Employment Residential Land Activity Tracks the value of construction activity, construction employment and its contribution to economic growth. Tracks the volume and median price of vacant residential lots produced and sold. 1. Land Production, Sales and Prices: QLD (Moving quarterly, original) 1. Value of Work Done: QLD (Quarterly, seasonally adjusted) 2. Construction Employment: QLD (Quarterly, seasonally adjusted)

2 Development & Construction Industry Performance Report QUEENSLAND heading industry growth Queensland s (QLD) development industry is now outperforming all other states. Total dwelling approvals (public and private) increased 12.6% in the three months to August The next best performer was Western Australia (WA) with growth of 7.6%. QLD has also been leading the way over the full year to Aug-14, with approvals up 24.5% to 38,237. This represents the best annual result in almost six years. Importantly, it is no longer an investor driven recovery, with owner-occupiers increasingly purchasing new houses and apartments. Owner-occupier loans for the construction or purchase of a new home rose a further 4.2% in the Aug-14 quarter after having increased 17.0% in the three months to May-14. Land production (newly certified vacant residential lots) and vacant land sales declined in the Mar-14 quarter (the most recently available data). Focussing on the annual figures however, an upward trend remains evident with 14,885 lots produced in the year to Mar-14 (up 23.8%) and 13,430 lots sold (up 3.9%). South-East Queensland (SEQ) continues to drive the growth in state-wide dwelling approvals and land markets. In the core detached dwelling sector, Ipswich and the Gold Coast were the standout performers in the three months to Aug-14, with detached dwelling approvals up 49.9% and 38.7% respectively. Cairns was the standout improver in the three months to Aug-14 outside of SEQ, with approvals up 28.0% to the best quarterly result in four and a half years. The number of dwellings commencing construction hit 35,292 in the financial year - up 20.2% on This is the best annual result in four years. Combined with slower than expected population growth in , new dwelling supply in was sufficient to meet underlying demand something that has occurred only twice in QLD in 10 years, according to UDIA (Qld) estimates. This is not cause for complacency however, with further improvement required in to meet the anticipated increase in population growth and to begin addressing QLD s cumulative undersupply of approximately 45,000 dwellings. Government at all levels need to continue to address regulatory and other barriers to housing supply, so that our industry can deliver a diverse range of land and housing that is affordable to Queenslanders of all income levels. CONTENTS Queensland Heading Industry Growth...1 Housing Finance & Approvals Loans for Owner Occupier Home Purchase: QLD 2. Approved Dwellings: QLD 3. Approved Dwellings, Houses: SEQ Approved Dwellings, Houses: QLD Regions Approved Dwellings, Units: Selected QLD Regions 4. Annual Approved Dwellings: State Comparisons 5. Approved Dwellings: Recent State Trends Residential Land Activty Land Production, Sales and Prices: QLD 2. Land Production: SEQ and Regions 3. Vacant Lot Sales and Prices: SEQ and Regions Housing Demand & Supply Population Growth Components: QLD 2. Over/Under Building Estimates: QLD 3. Home Affordability: Brisbane Non-Residential Activity value of Private Sector Non-Residential Building Approvals: QLD 2. value of Private Sector Commercial and Industrial Building Approvals: Recent State Trends Industry Output and Employment Value of Work Done: QLD 2. Contributions to QLD Growth: Year to Jun Construction Employment: QLD Spotlight On The Sunshine Coast...8 At a glance We have created a quick glance guide to help you identify key market indicators within this report. DECLINE Each icon reveals a performance snapshot of the information contained in each section. 1

3 HOUSING FINANCE & APPROVALS 1. Loans for Owner Occupier Home Purchase: QLD (Moving quarterly, original) Total private sector dwelling approvals increased 11.6% in the Aug-14 quarter to 9,538. Approvals of units and other attached dwellings rose 23.6% in the three months to Aug-14, almost offsetting the 28.8% decline in the previous three months. Approvals of attached dwellings continue to track at record annual levels. Detached dwelling approvals continued their upward trend in the three months to Aug-14 growing a further 3.4%. Over the full year to Aug-14, detached and attached dwelling approvals in QLD increased 13.0% and 39.7% respectively. 3. Approved Dwellings, Houses: SEQ (Quarterly, original) Through 2013 and early 2014, much of the upward trend in new dwelling approvals had been largely investor driven, with lending to owner occupiers for the purchase or construction of a new home failing to match the upward trend in approvals. However, owner-occupier activity in the new home market started to pick up noticeably in the three months to May-14 and this trend has continued in the Aug-14 quarter. Owner-occupier loans for the construction or purchase of a new home rose 4.2% in the Aug-14 quarter to 5,299 loans. Over the full year to Aug-14, there were 19,478 loans for the construction or purchase of a new home, an increase of 14.8% on the previous year. Lending for new construction rose 5.4% in the Aug-14 quarter whilst lending for already constructed new homes rose 1.4%. First home buyer activity in the overall market remains subdued with just 11.2% of all owner-occupier loans going to first time buyers. 2. Approved Dwellings: QLD (Moving quarterly totals, seasonally adjusted) Approved Dwellings, Houses: QLD Regions (Original, original) Approved Dwellings, Units: Selected QLD Regions (Quarterly, original) 2

4 Refer to tables on previous page. Ipswich and the Gold Coast were the standout performers in the three months to Aug-14, with approvals of detached dwellings up 49.9% and 38.7% respectively. There is still some way to go, however, for detached dwelling approvals in Ipswich and the Gold Coast to return to historical annual average levels. Over the full year to Aug-14, every monitored SEQ region posted an annual increase in detached dwelling approvals, with Sunshine Coast the strongest, rising 65.7%. In contrast, outside SEQ, results were mixed with only Cairns and the Wide Bay Burnett Region posting significant annual gains - up 24.3% and 20.6% respectively. Cairns was the standout improver in the three months to Aug-14 outside of SEQ, with approvals of detached dwellings up 28.0%. This is the best quarterly result in four and a half years. Turning to attached dwellings, Brisbane (inner, middle and outer) continues to post impressive results with annual approvals running at around double decade average levels. Approvals in inner Brisbane and the rest of Brisbane (middle and outer) are up 101.8% and 90.7% respectively over the year to Aug-14. Another strong quarterly result for the Gold Coast saw annual attached dwelling approvals hit 2,728 in the year to Aug-14 up 107.5% on the previous year and above decade average levels. Attached dwelling approvals in all reported regions are now tracking at above decade average levels with the exception of Cairns and Logan. 4. Annual Approved Dwellings: State Comparisons (Annual, seasonally adjusted) 5. Approved Dwellings: Recent State Trends (Moving quarterly totals, seasonally adjusted) Total dwelling approvals increased in QLD and WA up 12.6% and 7.6% respectively in the three months to Aug-14. Total approvals were flat in New South Wales (NSW) and VIC (down 0.7% and 0.1% respectively) and down 2.7% in SA. Detached dwelling approvals in NSW were particularly strong in the Aug-14 quarter up 9.0%, but offset by a fall of 8.4% in the volatile attached dwelling sector. In contrast, detached dwelling approvals fell 3.7% in VIC, offset by an increase of 5.4% in attached dwelling approvals. Stripping out the quarterly volatility, it appears that there is a continuing upward trend in dwelling approvals in all States with the exception of VIC, where it appear approvals have peaked. There were 38,237 approvals in the year to Aug-14 in QLD an annual increase of 24.5% - the highest of any Australian State. QLD approvals are now 5.1% above historical annual average levels. Victoria (VIC) continues to record strong approval levels that are well above historical average levels - up 15.2% this year to 55,788, VIC is now in its seventh year of above average approval levels. Western Australia (WA) is the strongest state when comparing approvals with historical averages up 19.3% to 31,153 in the year to Aug-14 being 46.2% above historical average levels. 3

5 RESIDENTIAL LAND ACTIVITY 1. Land Production, Sales and Prices: QLD (Moving annual, original) Source: QLD Treasury Land activity data is only available to Mar-14. There were 2,918 lots produced in the Mar-14 quarter, down from the four year high of 5,069 posted in Dec-13. This does not, in our view, indicate that the land market recovery has lost momentum. An analysis of historical data indicates a significant degree of seasonality in the data, with the March quarter typically being the quietest. Focussing on the annual figures, the bottom of the cycle has well and truly passed with 14,885 lots produced in the year to Mar-14 (up 23.8%). Lots sales fell 21.9% to 2,774 in the Mar-14 quarter. Over the year to Mar-14 there were 13,430 lots sold up 3.9% on the previous year and 17.8% above the cyclical low experienced in Decreases in the number of lots produced were experienced in every SEQ region in the Mar-14 quarter. Lots produced more than halved in Brisbane, Gold Coast, Logan and Sunshine Coast after a particularly strong final quarter of Ignoring the quarterly volatility, every SEQ region experienced significant annual increases in lot production, with the Sunshine Coast the standout performer up 107.3% to 1,132 lots. With the exception of Logan, however, lot production activity remains below decade average levels in all SEQ regions. This is particularly true on the Gold Coast, where production remains at just 58.4% of the average. In contrast, outside SEQ annual lot production has fallen in three out of five regions monitored. Lot production increased in Far North QLD and Northern QLD by 13.9% and 14.9% respectively in the year to Mar-14. Activity levels in Far North QLD and the Wide Bay Burnett region remain the most depressed with annual lot production levels at just 32.8% and 29.4% of decade average levels respectively. Despite a weak Mar-14 quarter, Central QLD annual production levels are 34% above the decade average. 3. Vacant Lot Sales and Prices: SEQ and Regions (Original) 2. Land Production: SEQ and Regions (Original) Source: QLD Treasury Lot sales fell in the Mar-14 quarter in SEQ (down 21.2%). Lot sales in the Dec-13 quarter were subject to a major statistical revision by Queensland Treasury with sales down just 1.9% rather than the 16.1% decline previously reported. On an annual basis, lot sales rose in every SEQ region in the year to Mar-14 with the exception of Toowoomba. The standout performer was the Gold Coast, where sales increased 80.6% over the year. Outside SEQ, lot sales fell in every monitored region in the Mar-14 quarter. On an annual basis, only Wide Bay Burnett and Far North QLD posted increases in lot sales up 21% and 18.5% to Mar-14 (albeit off a low base). 4 Source: QLD Treasury

6 Housing DEMAND & supply 1. Population Growth Components: QLD (Annual, original) DECLINE Continued strength in dwelling commencements in the first half of 2014 saw commencements hit 35,292 for the financial year (up 20.2% on the previous year). This is the best result in four years. Combined with slower than expected population growth in , new dwelling supply was sufficient to meet underlying demand something that has occurred only twice in 10 years. Further improvements in will be required to meet the anticipated increase in population growth and to begin addressing QLD s cumulative undersupply of approximately 45,000 dwellings. 3. Home Affordability: Brisbane (Quarterly) Population growth continues to disappoint, with annual growth slowing to 1.6% in the year to Mar-14. Net Interstate Migration (NIM) to QLD was just 689 in the Mar-14 quarter the weakest result in four years. Net Overseas Migration (NOM) to QLD increased in Mar-14 to 10,133 after hitting a decade low in Dec-13. On an annual basis, NIM and NOM are sitting at 5,772 and 34,462 respectively. Despite continuing to surprise on the downside, population growth in QLD remains widely tipped to increase over the next 18 months to hit 2.0% annual growth. In particular NIM is expected to improve, as QLD housing remains affordable relative to NSW and VIC and economic growth prospects are good relative to other States. 2. Over/Under Building Estimates: QLD (Annual, to ) f = forecast This graph tracks the home buying power of a Brisbane family with median family income (25 year mortgage, 10% deposit, 30% of gross income on repayments) and the median house price in Brisbane. Affordability peaked in Sep-13 and has started to deteriorate slowly as moderate house price growth outstrips weak wages growth. Median house prices in Greater Brisbane increased 2.2% in the Jun-14 quarter, resulting in a widening of the affordability gap to $50,270. Expressed another way, in Jun-14 it would have required 33.6% of gross median family income to purchase a median priced Brisbane property (up from 33.1% in Mar-14). Greater Brisbane house prices rose 6.5% in the year to Jun-14. Faster growth in prices in Sydney and Melbourne has made Brisbane housing more affordable in a relative sense. 5

7 Development & Construction Industry Performance Report NON-RESIDENTIAL ACTIVITY 1. V alue of Private Sector Non-Residential Building Approvals: QLD (Moving annual totals, original) After a particularly weak three months to May-14, the value of commercial and industrial private sector approvals in QLD fell a further 5.7% in the Aug-14 quarter. In the year to Aug-14, total private sector commercial and industrial approvals fell 16.9%, 18.0% and 6.5% in QLD, NSW and WA respectively. VIC bucked the trend by growing 26.0% over the year. The upward trend in VIC approvals appears to have come to an end however, with approvals weakening significantly since March. Declines in NSW and WA were driven by the retail sector, with the annual value of retail approvals down 31.7% and 21.1% respectively in the year to Aug-14. INDUSTRY OUTPUT & EMPLOYMENT 1. V alue of Work Done: QLD (Quarterly, seasonally adjusted) There was $1,124m worth of private sector non-residential approvals in the Aug-14 quarter; up 2.7% from an upwardly revised $1,095m in the three months to May-14. The office sector drove growth during the quarter with the value of approvals up 49.8%. Retail and industrial approvals fell 16.9% and 25.2% respectively. Over the year to Aug-14, non-residential approvals (public plus private sector) totalled $6.47bn down 17.0% on the previous year. Retail approvals increased 19.5% year-on-year, whilst office and industrial approvals fell 35.8% and 27.9% respectively. 2. V alue of Private Sector Commercial and Industrial Building Approvals: Recent State Trends (Moving annual totals, original) As expected, the value of engineering work done continues to fall; down a further 4.3% in the Jun-14 quarter to $9.7bn. In a welcome development, the value of non-residential building work done increased strongly in the Jun-14 quarter up 6.7%. Further improvements in non-residential building work done are expected over the remainder of the year as the upward trend in approvals observed between 2011 and 2013 flow through to construction activity. Residential building work done (excluding alterations and additions) increased a further 4.1% in Jun-14. Compared to the same quarter last year, work done is up 13.3%. The Reserve Bank of Australia (RBA) and the Queensland Government are predicting a continued recovery in residential dwelling investment during Improved residential dwelling investment is critical to offsetting anticipated declines in engineering activity. 6

8 2. Contributions to QLD Growth: Year to Jun-2014 (Percentage point contribution, seasonally adjusted) 3. Construction Employment: QLD (Quarterly, seasonally adjusted) QLD State Final Demand (SFD) fell 0.5% in the financial year, with engineering construction and business investment subtracting heavily from growth. Dwelling investment is making an increasingly positive contribution to growth, adding 0.31ppts to growth. Nondwelling investment is also making an increasingly positive contribution adding 0.32ppts to growth. The QLD State Budget predicts that SFD will continue to decline as a consequence of reduced business investment. In contrast, Gross State Product (a measure of economic output that includes international trade) is expected to grow by 3.0% in , largely as a consequence of increased LNG exports. Total QLD construction employment increased 1.7% in the Aug-14 quarter to 226,816. Full-time construction employment decreased by 0.9% during the same period. Flat employment numbers are suspected to be a consequence of recent declines in investment in the resources sector and public infrastructure projects; offsetting improved employment levels in the property development sector. In Dec-11, the UDIA (QLD) commissioned independent research on the development industry. The research shows that within the development industry, as at Jun-11, there were 181,200 people employed full-time (including construction, construction services, property operators and technical service providers) making the industry the fourth largest employer in QLD. 7

9 spotlight on the sunshine coast By Gary Emmett, Construction Economist Turner & Townsend Queensland s (QLD) property development sector is on the up, however development trends and drivers vary considerably from region to region. This quarter we shine the spotlight on the Sunshine Coast market one of the fastest growing in the State. As a property economist, here are some things to consider before you begin developing in the region. Firstly, I suggest looking at demographics. For this you could quickly download a report from the Queensland Government s Statistical Office showing the population profile of the Sunshine Coast. The average median age in the region is five years higher than the rest of QLD. Compared to the rest of the State, there is a population bulge in the five to 20 year-old and in the 40 to 65 year-old age groups. In other words, people are moving away from the Sunshine Coast when they are in their twenties, and returning in their forties to stay on long term. So developments that involve healthcare, aged care, financial planning, golf courses, restaurants, cafes and lifestyle property, might be worth further consideration. The next thing you could consider is housing demand and building approvals, which can be found in the same report. The Sunshine Coast s population of 278,000 is growing at around 2.0% per year (around 5,560 persons). That means around 2,224 more homes are needed each year (based on an average family size of approximately 2.5). Thus, the published housing approvals for the 2013/14 financial year of approximately 1,600 houses and 800 apartments (excluding Noosa) in the Statistical Office report could indicate that demand will be met. But typically only 90% of approvals will proceed to construction. Furthermore, many of the apartment approvals will be earmarked for tourism and investor developments and are usually bought by people living elsewhere. It is almost certain that there are not enough approvals to meet local demand as yet. Despite approvals having increased significantly in 2014, after several years of much lower approvals there is a high probability that an overhang in demand is not being met. The next thing to look at would be the economic outlook, jobs and growth potential, both locally and nationally. QLD is coming to the end of a boom in the construction of resources projects with three huge gas projects in Gladstone set to export gas in As construction winds down there is potential for the economy to slow. But economic cycles come and go, and often not at the same time. Fortunately, the end of the resources boom cooincides with an upswing in residential construction. It started in Sydney nearly two years ago and is now spreading to Brisbane, the Sunshine and the Gold Coasts. Housing approvals are up 65.7% and apartment approvals up 56.7% in the year to August 2014 on the Sunshine Coast. Much of this strong growth is due to low interest rates, which have improved affordability and investment returns for both owner-occupiers and investors. Price growth is still moderate in QLD and that may add to the attraction for interstate and overseas buyers. For investors, all you need is a 5.0% rental return to cover your interest costs. If you can achieve 7.0%, there is a good chance you can cover your other costs too. Interest rates look likely to remain at these levels for much of 2015, particularly given the effect of the fall in mining investment and the RBA s current bias towards expansionary settings for interest rates. A strong residential sector has a very positive effect on the local economy. Real estate, retail, construction, finance and insurance, building materials companies, professional services and consultants all benefit from a growing housing sector. There is also a great pipeline of new and potential projects that will bring jobs and investment to the Sunshine Coast. Construction of the Sunshine Coast University Hospital is well underway but a potential expansion of the Sunshine Coast airport, a new light rail project, a possible rail link to Caboolture, a huge solar power farm at Coolum and a new Maroochydore City Centre, will also eventually offer jobs and employment. Energy and mining construction may be coming to an end but QLD will continue to reap the benefits of gas and coal exports to Asia where energy is in great demand. Our proximity to Asia gives access to a huge and rapidly growing middle class looking for things we have in abundance. Aside from energy, this includes tourism, education, food and wine, clear blue skies, clean beaches, natural experiences and healthcare. The Sunshine Coast is well placed to benefit from this demand. Now that the exchange rate is falling, overseas visitors and students will see Australia as a less expensive and highly desirable place to visit. So the prospects for property development on the Sunshine Coast look excellent. As a further bonus, construction costs remain quite stable so the risk of cost overruns is much lower than we have seen in recent years. to read more commentary from Gary Emmett, visit Turner & Townsend s website 8