Despite watching more than our reasonable share of renovation television, Australians are not translating their viewing into additions and alterations of their homes. December Quarter data shows recorded expenditure remaining below the medium term quarterly average for the third successive quarter. However owner-occupier loan approvals have grown strongly in recent months.
As the chart below shows, the value of additions and alterations fell to AUD1.709 billion in the December Quarter, their lowest quarterly level since the March Quarter of 2013. The quarterly average value since the December Quarter 2010 has been AUD1.853 billion.
The value of alterations and additions recorded in DQ’14 was 4.5% lower than for the prior-corresponding period in DQ’13.
In a market with strong domestic dwelling approvals and new commencements, expectations would normally be that expenditure on alterations and additions would also rise, driven both by increased activity and higher prices. That this has not eventuated could mean Australians are learning from the television renovation programs and becoming even more dedicated to DIY. Although this is possible, it does not seem especially likely.
Where has the money gone that might have been spent on alterations and additions is a question asked regularly in the general economy.
The answer seems to lie in the state of the economy, perceptions of it and the behaviour the perceptions are driving among Australian households.
Coming out of the Grand Financial Conundrum, the average household has become concerned about the future, in particular employment and living standards, and also appreciating that significant levels of household debt were not in their interest. Rather than spending more as interest rates fell, Australians on average reduced their household debt substantially. Lingering softness in global economies, flowing through to daily commentary about the structural weaknesses in the Australian economy, have reduced the desire to re-engage in debt.
However, there comes a time when the choice to move to a new home or upgrade an existing residence reaches a tipping point. The seasonally adjusted value of owner-occupier approvals grew by 4.9% in January and by 5.5% in February. The February growth is the strongest since January 2012. While the growth was strong, most impressive is that the value of total loan approvals for alterations and additions in February 2015, hit a record high for the month of February, reaching AUD369.9 million.
The data bears the thesis out, especially with record low interest rates making borrowings against higher-valued houses all the easier to sustain. That is part of the dilemma being confronted by the Reserve Bank of Australia when it considers interest rate cuts. Despite cheap money being available, it has, until now, been spent purchasing assets (new houses), not engaging in the economy wide value adding of improving assets (alterations and additions).
As the details show, that may be about to change.
For further details, go to the FWPA Data Dashboard.