HIA Paper Reveals Sharp Deterioration of Renovation Approvals
By Peter Sarmas on 29 May 2013
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Investment into property renovation is continuing its trend south according to a Housing Industry Association (HIA) discussion paper titled, “Renovations Activity: The recent deterioration and outlook.” It revealed a sharp decline in renovation lending over the past two years.
According to the paper, there have been five consecutive reductions in the value of investment into renovations since the September quarter of 2011, while renovation investment fell by 8.4 per cent to a decade low of just $28.5 billion over the 2012 calendar year.
The HIA claims one of the major shifts experienced in Australia’s economic environment since the GFC has been a heightening of consumer caution. “This is demonstrated by the protracted weak consumer confidence measures and also the increased household savings rate – now at around 11 per cent, compared with a negative rate just prior to the GFC,” the paper says. In volatile economic times, householders sought options to pay off their debt quicker than in previous years and consequently had fewer resources available to invest into renovations. In addition, the paper says the increased saving mentality amongst Australian households is linked to an uncertainty over employment and the stabilisation of the jobs market.
Moreover, the paper revealed that meek growth in housing values across Australia continues to deter would-be renovators from taking the plunge. “In the years prior to the GFC, households were accustomed to renovating in a rising dwelling price market where they could borrow against rising equity,” said the paper. “However, when combined with banks’ now reduced appetite to lend, home valuations have been low, therefore restricting the ability of households (those that actually do want to renovate) to borrow.”
Data revealed in the paper shows that the level of lending for renovations has been declining since mid-2009, with the value of lending from December 2012 to February 2013 falling 11.6 per cent on a year-to-year basis. The HIA says the Reserve Bank of Australia (RBA) will do its bit to help stimulate confidence in the housing market, “The decline in renovations activity reflects broad economic weaknesses, to which the RBA has responded with rate reductions. Over time, lower interest rates will support the bottoming out and eventual uplift in renovations lending.”
That said, the HIA is not predicting a change to trend, at least in the short-term, to the Australian renovation market. “We expect that following the sharp decline suffered in 2012 (down by 8.4 per cent to $28.5 billion), total investment into renovations will rise by a modest 1.9 per cent to $29.0 billion in 2013 and remain around this level into 2015,” said the paper.
