The home renovations sector of the housing construction market in Australia has hit rock bottom and should now start to recover, a leading building industry group in Australia says.

Releasing the Winter 2013 edition of its National Outlook report, the Housing Industry Association (HIA) says it expects the overall dollar value of renovations investment throughout the country will have plummeted 6.6 per cent to decade-long lows of $27.959 billion in 2012/13 when final data comes in, but would bounce back to still low but more respectable levels of $28.937 billion during the current financial year.

In recent years, home renovations activity in Australia has floundered amid an environment of increasing consumer caution and a rising propensity on the part of households to save, HIA chief economist Harley Dale says.

Dale also says activity has been impacted by a flat-lining of house prices, which has impacted household ability to borrow using equity from their homes.

“There was about a three year period there where median housing prices effectively went sideways, so they weren’t able to leverage off a rising value for their primary asset,” he says. “It [stagnant house prices] also had a negative impact on banks willingness to lend for people to invest in renovating their existing property, so it caught people both ways.”

Australia Renovations Forecasts

Dale says the mid to high renovations area where people are willing to spend tens if not hundreds of thousands of dollars on a job were particularly hard hit.

He says weak activity in structural renovations such as ground floor makeovers and upper floor work have impacted general building trades such as carpentry, while a fall back in higher value kitchen and bathroom renovations had an impact on cabinet makers and those involved in wet trades.

With house prices now rising again – established house prices rose 2.4 per cent in the June quarter, according to ABS estimates- the HIA feels the situation is turning around.

While renovations are bottoming out, however, the number of new housing starts is expected to ease back 4.2 per cent this financial year after bouncing back 8.3 per cent off an extremely low base in 2012/13.

Australia Housing Starts Forecasts

Dale says a ‘first round’ of recovery in new housing starts has been driven by improving conditions in New South Wales and Western Australia – the former benefiting from strong population growth and the latter from pent up demand amid strong population growth in recent years as well as changes to the first home builders grant. He says, however, that this is likely to peter out to some extent and has repeated calls for further policy action to stimulate the home building sector.

In May, the HIA launched its election platform and unveiled 50 policy actions it said would provide a blueprint for a future government to address the growing housing affordability challenges.