Predicted growth in Tasmania’s renovation industry is providing some optimism as new home building declines

Consistent growth in spending on home renovations is indicating that Tasmanians are opting to improve their homes, rather than buying or building a new one, according to the quarterly report card released by the Housing Industry Association.

The HIA’s National Outlook showed the renovations industry has grown in Tasmania for five out of the past six years up to mid-2011, with further growth expected going forward.

“The increase of 1.2% in 2010/11 took renovations activity to a record value of $760m,” says Stuart Clues, HIA executive director. “Renovations activity is expected to romp it in this financial year, growing by 9.5% to exceed the $800m mark for the first time.”

The strong growth is anticipated to then flatten out during 2013 and 2014, which will mean it is no longer masking a worrying decline in new housing starts for the state.

“Tasmania is like South Australia,” says Clues. “A long history of healthy housing conditions which has been replaced by a marked deterioration.

“Over the five years to 2010/11, housing starts averaged 2,956 and this included in excess of 3,000 starts in 2009/10 and 2010/11. For this financial year, we are forecasting a decline of 17.9% to 2,466 starts … that is a hefty drop, which is unfortunately all but in the bag. This level of around 2,500 starts will be the lowest since 2002/03.”

Property market continues to flat line

The latest data from the Real Estate Institute of Tasmania (REIT) shows a market that continues to stagnate with a drop of 0.2% during the March quarter. While this is encouraging, given the recent rout in prices, REIT President Adrian Kelly admits the year on year performance is worse – with values dropping 12.3%

“The report wasn’t all doom and gloom though, with 11 municipalities reporting an increase in their median house price for the quarter, with six currently holding a higher median house price than the statewide figure,” says Kelly.

The report also highlighted the increase in the average time it takes for a house to sell in the current market. “The average time to sell a house increased by nine days for the March quarter, with the median days on the market currently sitting at 79 days for Tasmania,” he says. The rental vacancy rate also continued to increase in the March quarter, up 0.8% to 3.9%.

Wrong side of the economic super highway

Access Economics says Tasmania is on the wrong side of the two-speed economy. “While the resources investments are in overdrive and competition intense in many other sectors, the pain is currently deepening for those in the slow lane. That’s perhaps particularly true in Tasmania,” it says.

The economic forecaster adds that the flat housing market shows little signs of revival. “A key indicator – the housing activity is flat as a tack, with little by way of immediate prospects,” it says.

Population growth continues to weaken and its implications to the economy is worrying Access Economics. “The implications of weak population growth are now more worrying than they were at the turn of the century,” it says. “While growth in the working age population has outpaced total population growth since that time, the rate of retirements will see this trend reverse over the next decade. That means not only is the demand side of the state’s economy weak, so is its supply side production potential. Boomers are retiring, and companies aren’t investing, and that combination suggests that some of the weakness seen at the moment will carry on down the track as well.”

Access Economics blamed this slowing population growth to the rising unemployment in Tasmania, which has risen as high as 7% as the state loses more jobs.

The good news? The economic forecaster expects the economy to improve next year.

“The stagnant economy of the moment should at least lift a little over the next year or two. Some of the fears gripping consumers have probably been overstated. And although the potential for stronger investment spending by businesses is modest, it is there. That doesn’t change the longer term picture; Tasmania’s share of the national outlook continues to show a downward trend. In the short term, that is because of two-speed troubles. In the medium term, the combination of both an ageing population and an industry structure that’s less geared for growth than some others may prove problematic.”