Each year new housing adds around two per cent to the country’s existing housing stock. In the 2017/18 financial year, this equated to 229,740 homes. The record scale of the latest new home building cycle has clearly been hugely positive for the kitchen and bathroom industry.
Australia also has nearly 10 million existing homes – and depending on their age and size will likely generate a large volume of renovations activity for the kitchen and bathroom industry. HIA research indicates that there’s a strong link between the age of dwellings and the amount of renovations work that is undertaken on them. The nature of this relationship allows for predictions on the underlying or notional demand for kitchen renovations jobs, based on the number of homes within certain age categories.
Estimated demand for kitchen renovations is projected to track horizontally for the next three years, with only a minor increase of 0.3 per cent forecast during 2018/19. Demand is expected to pick up in the 2021/22 financial year, with an increase of 1.7 per cent, bringing the tally to 151,990 kitchen renovations.
Estimated demand for bathroom renovations is anticipated to also remain relatively flat, increasing by a marginal 0.4 per cent over the next two financial years. It’s then forecast to increase by 0.7 per cent and 2.9 per cent in 2020/21 and 2021/22 respectively, to total 241,039 bathroom renovations.
In 2018, lending for renovations activity was valued at $3.7 billion. The latest HIA-GWA Kitchens and Bathrooms Report 2018/19 provides comprehensive forecasts and unique insight into this important sector of Australia’s residential building industry, and the wider economy. The report is free to members.
Does falling house prices mean decreased renovation activity?
As a response to falling home prices, there’s typically a reduction in the number of transactions occurring in the market while sellers hold off until market conditions have improved. Many renovation jobs occur around the time that a dwelling is transacted: either before it is sold to improve its value or once the new owners move in.
The recent downturn in prices should result in a reduction in renovations activity. We have seen a substantial reduction in the amount of lending for home renovations, but other activity indicators are still performing strongly, which suggests this may not be the main driving force.
A competing theory suggests that when house prices fall we should expect to see a boost in renovations activity. Households transact in the housing market to occupy housing with amenities that best meet the needs of the household. When prices soften, households lose confidence in the market and choose not to transact, but the objective of aligning the amenity of the home with the needs of the household remains. Instead of transacting in the market, more households choose to undertake renovations so they can improve the comfort of their existing property. The recent, and relatively strong, levels of renovations activity suggest this may be a more important driver of activity.