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The Longer Term Outlook

 

BIS Oxford forecast for sawn timber demand out to 2035 shows there is life after COVID 19. However, the immediate outlook is very challenging with the current cyclical downturn expected to bottom out in 2020/21 and steadily improve back to pre COVID peaks during 2023/24.

What a difference a few months can make! As the table above shows very well, Australia’s dwelling approvals forecasts in February 2020 were for two years of growth, with the second year (FY2022) showing huge gains, in the order of 15%.

By June, the forecasts were revised, such that the new (FY2021) and the next (FY2022) financial years are expected to see dwelling approvals lower than the anticipated 161,600 for the recently departed 2019-20 financial year, according to the revised forecasts produced by BIS Oxford Economics for a project managed by FWPA.

As the table shows, approvals of detached dwellings are expected to be relatively stable through FY2021 and FY2022, before rebounding strongly in the two following years. The outlook for the medium density formats (townhouses in the main) is similar, but generally stronger in the short term.

Over that same period however, the forecast for higher density dwelling approvals is very poor, especially when comparing the pre-pandemic and post-pandemic forecasts.

However, there are some slightly brighter notes, even for the prolonged recovery from the pandemic. Just as relevant as the number of dwellings approved, the indicators point to a modest 3% expansion in the value of residential activity over FY2021, to $110.5 billion. As with the approval numbers, only the high-density dwellings are expected to see value soften.

The driver for value increasing is reported in this manner:

“Interest rate cuts and eased mortgage serviceability testing have already flown through positively to the established property market, and are positioned to drive a recovery in total residential building from mid-2020, subject to the impact of the coronavirus.”

By FY2023, the forecasts for commencements will hit around 230,000 total dwellings, driven by “Population growth, rising dwelling stock deficiency, housing stimulus including interest rate cuts, and improving household confidence…” There may be some debate about this, based on different views of the likely pace of a return to net overseas migration, which is currently entirely halted.

One feature the forecasts confirm, is that medium-density and especially high-density dwellings, will continue to grow their share of the total Australian housing market over the period to 2035. This can be seen in the chart below.

Residential Dwelling Commencements, Australia, by type

Source: BIS Oxford Economics

Fig. 1­­­

The report also addresses sawn softwood timber demand. We address current demand in Statistics Count on an ongoing basis, so here we will address the forecasts. The report finds that, “Demand is expected to reach a high of 4.25 million m3 with the peak of the residential building cycle in FY2023.”

This can be observed in the following chart, but needs to be read in conjunction with the following comment: “A modest decline in sawn timber demand is anticipated over the forecast period, reflecting some substitution from wood products to competing products.”

With its position across the building products sectors and the housing supply chain, BIS makes an import point about the future prospects for growth in sawn softwood consumption: there are competitors and they are not standing still.

Australian Softwood Sawn Timber Demand

Source: BIS Oxford Economics

Fig. 2

Click here to download a copy of the full report.

 

Posted Date: July 15, 2020

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