HomeBuilder's 'profitless boom' left builders holding fixed-price contracts while material costs rose up to 40 per cent and construction costs climbed 7.3 per cent in 2021, the steepest since 2005. UDIA president Maxwell Shifman blames thinning supply pipelines, planning inefficiencies and lockdowns for delayed completions and diminished apartment supply.
As I told the Australian Property Journal: “While house values have risen, costs have risen almost as fast, leaving some builders and developers who made sales based on fixed prices caught out,”
I also said: “It has also primarily been focused on greenfields (a real estate construction project on previously undeveloped land), leaving apartment markets at severely diminished approval and completion rates compared to the prior peak.”
And I added: “HomeBuilder has revealed two quite important things; firstly, the development and construction industry's amazing ability to kickstart economic productivity, but secondly, that there are significant systemic issues such as thinning supply pipelines and planning/construction inefficiencies, which need to be fixed immediately to combat affordability problems and reduce economic drag as immigration levels return to normal.”
I went on to say: “Victoria was particularly strongly affected – while construction was able to continue through majority of the lockdown periods, restrictions such as the metro/regional 'ring of steel' and limits both on worker density and how many sites could be visited by trades during the week, severely delayed construction start and completion timeframes,”
I also made the point: “Australia needs immigration to return to strong levels, and with the country's overall health record and speedy recovery from the pandemic, we are surely at the top of many potential migrants' lists as the place to come to live and work.”
And finally: “Previously, builders would fix prices for 12 months or even more in some cases”
I also noted: “All this is before you factor in the ever-increasing approval delays, and the taxes and charges being levied by various state governments across the country.”
I went on: “Interest rate movements need to be carefully watched as they, coupled with macroprudential lending controls, strongly influence a buyer’s capacity to purchase”
And I said: “With costs and prices at all-time highs, curbing lending capacity too quickly could have an enormous impact on the market – it depends on how deeply the rates impact borrowing and most critically, how it affects existing homeowners paying their mortgage. I would expect, however, that the rate of costs growth will moderate over the coming period.”
I added: “The lack of population growth over the past two years, and the ending of HomeBuilder encouraging additional new supply/demand, could leave the industry severely diminished by the end of 2023. This would be disastrous for the broader economy as, according to the Australian Bureau of Statistics, every dollar spent on residential construction creates $2.90 of economic activity.”
I also argued: “It would be prudent for the Federal Government to continue to harness the growth driving capacity of the development and construction industry to strengthen the economy, smooth out the recovery and foster greater efficiencies in delivering new housing to market.”
Australian Property Journal, 22 February 2022 — Read the full article