The Residential Outlook for South Australia

The Residential Outlook for South Australia Matthew King Economist HOUSING INDUSTRY ASSOCIATION February 2011

Overview Economic backdrop Other important matters Interest rates & bank lending Renovations investment Where to? Are the leading indicators turning the corner? HIA Economics forecasts

The Economic Backdrop

% change Sep-89 Sep-90 Sep-91 Sep-92 Sep-93 Sep-94 Sep-95 Sep-96 Sep-97 Sep-98 Sep-99 Sep-00 Sep-01 Sep-02 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 New Housing and Renovations Outlook Australian economy set to grow, but unevenly Gross Domestic Product Source: ABS 5206 6.0 5.0 4.0 3.0 2.0 1.0 0.0-1.0-2.0 Qtrly Annual RBA is forecasting growth of 3.5% in 2010/11 and 3.75% in 2011/12.

Jun.1994 Jun.1995 Jun.1996 Jun.1997 Jun.1998 Jun.1999 Jun.2000 Jun.2001 Jun.2002 Jun.2003 Jun.2004 Jun.2005 Jun.2006 Jun.2007 Jun.2008 Jun.2009 Jun.2010 Jun.2011 Jun.2012 Jun.2013 Jun.2014 Jun.2015 South Australian Economy Gross State Product - South Australia Year ended June Source: ABS 5220.0; Access Economics 6.0 5.0 Long term average 4.0 3.0 Forecast 2.0 1.0 0.0 Access Economics is forecasting 1.5% growth for the year to June 2011 and 2.4% for the year after that.

Manufacturing outlook still unsteady Ai Group PricewaterhouseCoopers Australian Performance of Manufacturing Index

Per cent Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Unemployment rate has now peaked South Australia's Unemployment Rate Source: ABS Labour Force 13.0 12.0 11.0 10.0 9.0 8.0 20 Year Average Unemployment 7.0 6.0 5.0 5 Year Average Unemployment Rate 4.0 The unemployment rate is slowly trending down

State unemployment rates Unemployment Rate by State - January 2011 Source: ABS Labour Force 7.0 6.5 6.4 6.0 5.5 5.0 4.5 4.9 5.1 5.6 5.3 4.6 National Unemployment Rate 4.0 3.5 3.4 3.0 2.5 2.3 2.0 NSW VIC QLD SA WA TAS NT ACT

% Interest Rate New Housing and Renovations Outlook Apr-08 Jun-08 Aug-08 Oct-08 Dec-08 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Interest rates the key driver in 2011 Interest Rates, Australia Source: RBA 10.00 9.00 8.00 The cash rate ended 2010 at 4.75%, as per HIA s forecast. 7.00 6.00 5.00 4.00 Mortgage rates are slightly restrictive, business rates highly restrictive. 3.00 2.00 How much more and when are the key questions. Discounted Variable Mortgage Rate RBA Cash Rate

$ billion Australia s lending environment Credit aggregates - Annualised - Australia Source: RBA 10000.0 +7% 9000.0 8000.0-4% 7000.0 6000.0 5000.0 4000.0 +9% 3000.0 2000.0 +3% 1000.0 0.0 Owner-occupier Investor housing Other personal Business Dec 09 qtr Dec 10 qtr

Leading indicators turning the corner?

Number Sep-88 Sep-90 Sep-92 Sep-94 Sep-96 Sep-98 Sep-00 Sep-02 Sep-04 Sep-06 Sep-08 Sep-10 New home starts were strong in year to Sep 2010 Total Dwelling Starts South Australia Source: ABS 8750.0, HIA 4000 3500 3000 2500 2000 1500 1000 Seasonally Adjusted Trend Housing starts were up 12% in the year to September 2010

$ Sep-02 Dec-02 Mar-03 Jun-03 Sep-03 Dec-03 Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Number Residential land - Adelaide Residential Land - Adelaide Source: RP Data 195,000 175,000 155,000 135,000 1,800 1,600 1,400 1,200 1,000 115,000 95,000 75,000 55,000 800 600 400 200 - No. of sales (RHS) Value (LHS) The bulk of land sales occurred in the northern suburbs at the Blake's Crossing & Playford Alive developments Sales were also strong around Woodville as the St Clair development gathered momentum

Land sales South Australia Residential Lot Sales Source: RP Data, HIA Economics Group Outer Adelaide 9% Adelaide -8% Yorke and Lower North -9% South East -17% Eyre -21% Murray Lands -36% -40% -35% -30% -25% -20% -15% -10% -5% 0% 5% 10% 15% Annual % change

Dec-04 Apr-05 Aug-05 Dec-05 Apr-06 Aug-06 Dec-06 Apr-07 Aug-07 Dec-07 Apr-08 Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10 Aug-10 Dec-10 Housing finance have we bottomed out? SA New Home Lending - Number of Loans Source: ABS Housing Finance 900 800 700 600 500 400 300 200 100 0 Total New Loans Construction of dwellings Purchase of new dwellings Disappointing tapering off in new loans, but it seems we may have turned the corner

Number of loans FHB s vs Non-FHB s First Home Buyer versus Non-First Home Buyer Loans Source: ABS Housing Finance 14,000 12,000 10,000 11,661 % change: -11% 10,376 8,000 6,000 4,000 2,000 2,718 % change: -45% 1,500 0 FHB 3mths to Dec 09 3mths to Dec 10 Non-FHB 3,151 FHB loans written in first half of 2010, compared with 3,028 in the second half of 2010 Non-FHB loans UP 6% in the second half of 2010!!

Value $m (moving annual total) New Housing and Renovations Outlook Dec-01 Apr-02 Aug-02 Dec-02 Apr-03 Aug-03 Dec-03 Apr-04 Aug-04 Dec-04 Apr-05 Aug-05 Dec-05 Apr-06 Aug-06 Dec-06 Apr-07 Aug-07 Dec-07 Apr-08 Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10 Aug-10 Dec-10 Investor lending South Australia Lending for Rental Properties - South Australia Source: ABS Lending Finance 6,000 5,000 500 450 400 4,000 3,000 2,000 1,000 0 350 300 250 200 150 100 50 0 Existing (lhs) Construction (rhs)

New Housing and Renovations Outlook Building approvals a rebound in multi-units SA Monthly Dwelling Approvals Source: ABS Building Approvals 1600 1400 1200 1000 800 600 400 200 0 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Total Detached Houses Multi-Units Detached house approvals fell by 17% in the Dec 2010 quarter. Multi-unit approvals fell by 13% in the Dec 2010 quarter.

Number 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 New Housing and Renovations Outlook Building approvals in a historical context Residential building approvals - South Australia Source: ABS 8731.0 14000 12000 10000 8000 6000 4000 2000 0

The outlook housing starts Calendar Year Starts NSW Vic Qld SA WA Tas NT ACT Aust 2003 (a) 44.46 44.90 41.19 10.23 21.73 2.42 0.98 2.77 168.96 2004 (a) 45.14 42.45 41.34 10.51 22.76 2.99 1.24 2.27 168.93 2005 (a) 34.27 40.32 39.04 10.72 24.15 2.63 1.31 2.42 154.74 2006 (a) 31.76 39.33 38.69 11.19 26.48 2.76 1.19 2.43 153.86 2007 (a) 29.95 40.14 43.15 11.31 22.86 2.89 1.46 2.29 153.92 2008 (a) 28.60 41.41 38.76 12.73 20.74 2.91 1.04 2.41 148.44 2009 (a) 25.47 45.86 28.38 11.07 20.20 3.02 1.17 3.45 138.58 2010 32.57 59.99 31.72 12.45 24.72 3.04 1.36 4.09 169.95 2011 30.08 52.68 27.98 11.35 20.83 2.85 1.11 3.72 150.60 2012 31.54 43.75 30.45 11.50 21.72 2.92 1.34 3.68 146.90 2013 33.41 43.79 33.27 11.63 23.02 2.97 1.41 3.75 153.25 Source HIA Economics % change: NSW Vic Qld SA WA Tas NT ACT Aust 2004 (a) 2% -5% 0% 3% 5% 23% 26% -18% 0% 2005 (a) -24% -5% -6% 2% 6% -12% 5% 6% -8% 2006 (a) -7% -2% -1% 4% 10% 5% -9% 0% -1% 2007 (a) -6% 2% 12% 1% -14% 5% 23% -6% 0% 2008 (a) -4% 3% -10% 13% -9% 1% -29% 5% -4% 2009 (a) -11% 11% -27% -13% -3% 4% 13% 43% -7% 2010 28% 31% 12% 12% 22% 1% 17% 19% 23% 2011-8% -12% -12% -9% -16% -6% -19% -9% -11% 2012 5% -17% 9% 1% 4% 3% 21% -1% -2% 2013 6% 0% 9% 1% 6% 2% 5% 2% 4%

Number of starts 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 New Housing and Renovations Outlook How the outlook stands in a historical context Housing Starts - Annual - South Australia Source: ABS 8750.0 14000 12000 10000 8000 6000 4000 2000 0

'000 Housing starts forecast Housing Starts - South Australia ABS 8750; HIA 3.6 3.5 3.4 3.3 3.2 3.1 3.0 2.9 2.8 2.7 2.6 2.5 2.4 2.3 HIA forecasts

Jun-90 Jun-91 Jun-92 Jun-93 Jun-94 Jun-95 Jun-96 Jun-97 Jun-98 Jun-99 Jun-00 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 South Australia s population growth by component South Australia's Population Growth by Component - Moving Annual Total Source: ABS 3101.0 25,000 20,000 15,000 10,000 5,000 0-5,000-10,000 Total MAT Natural Increase MAT Net Overseas Migration MAT Net Interstate Migration MAT Adelaide is included in the SA Skilled Regional Sponsored (SRS) Visa regions

Home Prices and the Renovations Sector

House and unit price growth Change in home values - December 2010 quarter Source: RP Data, Rismark International 3.0% 2.0% 1.5% 1.9% 1.0% 0.0% -1.0% -2.0% -3.0% 0.5% 0.4% 0.8% -0.8% -0.1% -0.1% -1.7% -1.6% -2.0% -1.2% -1.1% 0.3% 0.3% -4.0% -5.0% -4.1% Sydney Melbourne Brisbane Adelaide Perth Darwin Canberra Australian Capitals Houses Units

$ million Sep-1989 Jun-1990 Mar-1991 Dec-1991 Sep-1992 Jun-1993 Mar-1994 Dec-1994 Sep-1995 Jun-1996 Mar-1997 Dec-1997 Sep-1998 Jun-1999 Mar-2000 Dec-2000 Sep-2001 Jun-2002 Mar-2003 Dec-2003 Sep-2004 Jun-2005 Mar-2006 Dec-2006 Sep-2007 Jun-2008 Mar-2009 Dec.2009 Sep-2009 Renovations activity trending up again Renovations Investment in South Australia - Moving annual total Source: ABS State Final Demand 2,500 2,300 2,100 1,900 1,700 1,500 1,300 1,100 900 Investment was down 4.5% in the year to September 2010

Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Major alterations & additions The SA Renovations and Additions Market Monthly Lending and Monthly Council Approvals 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Lending for Alts and Adds Value of Council Approved Alts and Adds Lending for major alts & adds in the December 2010 quarter was up by 15%

The outlook renovations HOUSING RENOVATIONS FORECAST: by state and territory Value of investment, $ million, Chain Volume Measure NSW Vic Qld SA WA Tas NT ACT Aust 2003/04 (a) 11,135 7,296 7,432 2,237 3,594 778 233 435 33,140 2004/05 (a) 10,932 7,009 7,810 2,259 3,782 754 336 385 33,267 2005/06 (a) 10,094 6,537 8,244 2,231 3,744 778 363 403 32,394 2006/07 (a) 8,534 6,238 8,266 2,220 3,701 729 270 342 30,300 2007/08 (a) 8,479 6,768 7,938 1,900 4,449 786 207 380 30,907 2008/09 (a) 8,111 6,668 7,455 2,077 4,109 803 213 311 29,747 2009/10 (a) 8,432 6,455 7,875 2,101 4,686 767 261 408 30,985 2010/11 8,432 6,455 7,875 2,101 4,686 767 261 408 30,985 2011/12 8,542 6,358 8,111 2,221 4,667 790 248 388 31,325 % change 2004/05-1.8-3.9 5.1 1.0 5.2-3.1 44.2-11.5 0.4 2005/06-7.7-6.7 5.6-1.2-1.0 3.2 8.0 4.7-2.6 2006/07-15.5-4.6 0.3-0.5-1.1-6.3-25.6-15.1-6.5 2007/08-0.6 8.5-4.0-14.4 20.2 7.8-23.3 11.1 2.0 2008/09-4.3-1.5-6.1 9.3-7.6 2.2 2.9-18.2-3.8 2009/10 4.0-3.2 5.6 1.2 14.0-4.5 22.5 31.2 4.2 2010/11 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2011/12 1.3-1.5 3.0 5.7-0.4 3.0-5.0-5.0 1.1 (a) = actual

Other important matters

Rental markets set to remain tight Capital City Vacancy Rates, October 2010 Source: SQM Research Hobart 1.0% Darwin 1.7% Canberra 0.5% Perth 1.1% Adelaide 1.0% Brisbane 2.1% Melbourne 2.6% Sydney 1.2% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% Per cent

Trade prices and availability Adelaide Trade Prices and Availability - Adelaide Source: HIA-Austral Bricks Trade Report Index 0.00-0.10-0.20-0.30-0.40-0.50-0.60 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Index 138.0 136.0 134.0 132.0 130.0 128.0 126.0 124.0 122.0 120.0 118.0 Trade Availability (LHS) Trade Prices (RHS

Trade prices and availability Regional South Australia Trade Prices and Availability - Regional SA Source: HIA-Austral Bricks Trade Report Index 0.00 Index 150.0-0.10 130.0-0.20 110.0-0.30 90.0-0.40 70.0-0.50 50.0-0.60 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 30.0 Trade Availability (LHS) Trade Prices (RHS

Index no. Mining income versus trades shortage Mining income vs. trades shortages -Australia Source: ABS 5206.0 & HIA Economics 1.30 1.25 1.20 1.15 1.10 1.05 1.00 Mining income Trades shortage

New Housing and Renovations Outlook Summary Interest rate rhetoric and movements will be the key driver of new housing activity in 2011/12, followed by on-going credit constraints. Labour market conditions will be a key positive for housing demand as will reasonably strong growth in household incomes. A lack of progress on key housing policy reforms looks set to persist due to budget constraints at a Federal and state level, a convoluted COAG agenda, and a lack of appetite at the Federal level. So, while new home building activity is likely to slow in 2011... it appears that the leading indicators are turning a corner and heading up again.

Thank you Matthew King Economist HOUSING INDUSTRY ASSOCIATION