Look through much of today’s media and you will see talk of the slowdown in the housing market.
Less talked about is a decline in home renovations activity.
In the most recent edition of its Construction Market Report released in November, Australian Construction Industry Forum (ACIF) said it expects the dollar value of work done on home renovations throughout Australia to drop by 10.8 percent over three years from $35.915 billion in 2016/17 to $32.053 billion in 2019/20.
According to ACIF, the decline will be felt in all states and territories and will be consistent across the board.
It will also be consistent across different types of jobs. Large renovations (those for which approval is required) will drop from $8.772 billion to $7.661 billion. Smaller jobs, which support most of the sector’s employment, will drop from $27.143 billion to $24.382 billion.
(Note: The ABS data referred to above captures only renovation work for which council approval is required. It does not capture smaller jobs for which no approval is needed.)
ACIF lead forecaster Kerry Barwise says the decline will driven by falling house prices and a contraction in the availability of credit. In 2018, data from CoreLogic indicates that average capital city dwelling values contracted by 6.1 percent. This is being led by Sydney and Melbourne, where prices dropped 8.9 percent and 7.0 percent respectively. In terms of credit, the $114.0 billion lent to households throughout Australia over the six months to December (seasonally adjusted, owner occupation and investment combined but excluding refinancing) was down 9.1 percent compared with the six months before that and represented the lowest value on record for any six month period in more than five years.
According to Barwise, this will affect activity as those considering renovations may be less inclined to proceed. At any rate, given the aforementioned credit constraints along with lower levels of household equity courtesy of the decline in dwelling values, many households are becoming more constrained in their ability to borrow.
“For people who might have been thinking about an extra bedroom or fixing up the kitchen, one of two things happen,” Barwise told Sourceable, referring to the decline in house prices and the reduction in credit availability.
“First, they are less inclined to do it if the value of the property is on its way down. The other one is that you have lower capacity to borrow.”
Aside from this, Barwise says the tightening in credit may impact investor plans regarding the upgrade and maintenance of rental properties.
According to Barwise, the drop off in renovation investment is likely to be the first stage in a broader decline in new home building. In 2018/19, ACIF expects the dollar value of work done on the construction of new houses and apartments to peak at $13.864 billion for multi-residential dwellings and $9.518 billion in the case of houses. By 2020/21, it says activity in these sectors will have fallen to $10.584 billion and $9.354 billion respectively.