More Australians are looking to renovate this year with a boom in the sector expected to create a $44 billion industry by 2023, says Australia’s peak builder body.
Master Builders Australia forecasts that homeowners will collectively spend $8.8 billion annually for the next five years, up from last year’s decade-high of $8.3 billion, with people living in Adelaide, Perth and Brisbane the keenest to upgrade.
“It has provided a much-needed lifeline for small building businesses outside of Melbourne and Sydney who have seen the new-housing construction side of their businesses struggle in the past few years,” said the MBA’s national manager of economics, Matthew Pollock.
Pollock said a fall in new home construction in Sydney and Melbourne would be transferred to the renovation market, while other states would move from a decline to a boom.
After three years of “unprecedented growth” in new-home building, in which more than 200,000 new homes went up annually, renovations will pick up as the pace of new homes slowed, Pollock said. “Despite the forecast showing a moderation in new-dwelling construction, we expect new commencements in 2017-18 to top 195,000 and average around 185,000 thereafter.
“To keep pace with population growth, we will need to build at least 185,000 new dwellings each year for the next five years,” he said.
Conditions were right to upgrade, particularly new kitchens, thanks to continued low borrowing rates, tax advantages in reinvesting in your own home and a desire among homeowners to remain in their suburb, he said.
Another kicker was prohibitive stamp duties across Australia of up to $50,000 on the sale of a median-price home in Sydney and Melbourne, which pushes homeowners towards improvements rather than a move.
HIA principal economist Tim Reardon was less enthusiastic, not expecting a pick-up in renovation activity until 2019, but then to rise steadily to a peak of 5.7 per cent growth in 2020, when the market is estimated to be worth $35.6 billion.
About 30 per cent of Australians spend between $70,000 and $200,000 on upgrades, a third of which is on new kitchens, according to the HIA.
Dampening the sector would be a cooling of house prices, which lowers the home equity to borrow against continued slow-wages growth and weak consumer sentiment.
Australia’s previous reno boom was in response to federal government tax concessions and handouts from the GFC in 2008, Reardon said.
By far the biggest influence on an upswing in activity would be a vast number of ageing detached homes moving into the 30 to 35-year-old bracket in need of a mid-life spruce-up.
“Between 2017 and 2020, the number of houses in this key age bracket is set to expand by 8.3 per cent as a result of the record volume of new detached house building in the late 1980s,” the HIA said in its December report on the market.
“With new-home building set to decline over the next couple of years, the gradual strengthening of renovations activity is coming at the right time,” Reardon said.