Market Report: Architects Benefit from Housing Boom

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Monday, February 23rd, 2015
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Having endured several years of weak conditions, the architecture profession in Australia is set to benefit from a continued recovery in home building activity throughout most of Australia going forward.

Despite this news, the level of work associated with major renovations of existing homes is expected to remain somewhat subdued.

Following several years of extremely soft levels of activity, the number of starts which took place in new residential construction broke 180,000 for only the second time in more than 30 years of ABS records in 2013/14, and is expected to soar to 185,800 in the current financial year and remain at high levels for several years to come, according to the Housing Industry Association.

Already, the benefits to architectural firms and staff are being clearly seen, with employment advertisements in areas such as architecture, landscape architecture, architectural drafting, illustration and animation, urban planning and design and interior design on the rise.

Several factors are driving this. First and most obvious is the low interest rate environment, which has dramatically increased the financial capacity of households to invest in new housing.

Growing levels of interest in Australian property from overseas investors, too, is also having an effect as restrictions on foreign investment in existing residential property see almost all of this money channelled into new construction, especially in multi-residential dwellings in major cities.

In Sydney, especially, low levels of construction activity over recent years have precipitated a significant build up in pent up demand. Moreover, strong levels of immigration and population growth is accentuating an underlying deficit of what BIS Shrapnel puts at around 100,000 homes nationally.

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Still, there are headwinds as subdued conditions throughout the general economy continue to impact upon household income, attempts to address supply-side constraints through initiatives such a as planning reform are delivering mixed results (Western Australia, for instance, recently abandoned a plan to merge and consolidate local councils) and strong levels of construction activity will eventually eat up into the immediate pent up demand built up over recent years notwithstanding underlying long-term structural deficits in housing supply.

Conditions will not be uniform across different geographic location and dwelling type. While starts in New South Wales and Victoria and Western Australia are expected to remain at elevated levels, those in Queensland and to a lesser extent South Australia and Tasmania are expected to modestly recover off a low base, the HIA says. Meanwhile, starts in the red-hot multi-residential sector will ease back but remain at elevated levels whilst those in detached housing will rise from an estimated 104,440 in 2013/14 to a peak of 111,510 in 2016/17.

Outside of new housing, meanwhile, the HIA expects activity in the previously sluggish home renovations sector is also set to gradually recover but remain at modest levels by historic standards until at least 2017/18. Continued accommodative monetary policy will help, it says, while higher home prices will increase household ability to leverage household equity to finance additions and improvements.

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State by State

According to the HIA:

  • In New South Wales, dwelling commencement numbers are expected to ease back but remain at historically elevated levels of more than 45,000 until at least 2017/18 after peaking at a whopping 51,400 this year amid an undersupply of housing. The dollar value of investment in renovations activity, meanwhile, is set to rise 9.8 per cent this year after bottoming out at $7.398 billion in 2013/14 but remain at historically modest levels of below $9,000 until at least 2017/18.
  • In Victoria, which has consistently defied expectations of a drop in activity amid several years of very strong conditions, starts are expected to remain at just above 50,000 in the current financial year before dropping back but remaining at historically high levels over the forecast period. Renovations investment will drop back from a peak of $7.646 billion in 2013/14 but remain at respectable levels of above $7 billion until 2017/18.
  • In Queensland, a modest comeback in new residential housing which began in 2013/14 is expected to continue to gather momentum, especially in the state‚Äôs south-east as an easing in multi-unit starts from sky-high levels in 2013/14 is more than offset by continued momentum in detached housing. A modest recovery in renovations work will gather momentum and see the dollar value of work done on additions and alterations rise to respectable levels of more than $7 billion by 2017/18.
  • In South Australia, a continually sluggish economy will see housing starts drop by eight per cent in 2014/15 to a disappointing 9,890 before gradually recovering to more respectable levels of nearly 11,190 by 2016/17. Renovations work should rise from a modest $1.982 billion in the current financial year to 10-year highs of $2.194 billion by 2017/18.
  • In Western Australia, housing starts should remain at sky high levels of 28,110 in 2014/15 but drop back albeit remaining at historically respectable levels thereon after as slowing population growth following the end of the mining boom and fears of a glut of apartments in Perth following several years of strong building activity causes investment in new housing to ease back. Renovations activity should remain stable at historically respectable levels of around $3.9 billion.
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