The foundations of the Australian housing construction industry may not be crumbling but are looking decidedly shaky in the face of mounting problems driving some established builders to the wall.<\/p>\n
The Federal government\u2019s Homebuilder scheme had provided a temporary stimulus during trying pandemic times but has had the unintended side effect of denting supply of construction materials such as brick, timber and steel.<\/p>\n
Some materials costs have gone up as much as 40 per cent, and myriad other issues are besetting the industry.<\/p>\n
As well as housing construction costs hitting at an all-time high, building approvals have begun to stall, inflation is on its way up and pressure is mounting on interest rates<\/a>. Labour shortages are pushing up costs substantially, and builders are warding off potential legal implications around contractual deadlines.<\/p>\n Speaking to Australian Property Investor Magazine<\/em>, some of the most respected voices in the construction sector detailed their concerns and insights around the seemingly perfect storm enveloping the sector.<\/p>\n Maxwell Shifman, Urban Development Institute of Australia National President<\/p>\n<\/div>\n Maxwell Shifman, National President of the Urban Development Institute of Australia, said that inundated with work but facing cost blow-outs, the \u201cprofitless boom\u201d brought about by the initial success of HomeBuilder has also exposed major underlying challenges for the industry.<\/p>\n \u201cWhile house values have risen, costs have risen almost as fast, leaving some builders and developers who made sales based on fixed prices caught out,\u201d Mr Shifman said.<\/p>\n \u201cIt 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.<\/p>\n \u201cHomeBuilder has revealed two quite important things; firstly, the development and construction industry\u2019s 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.\u201d<\/p>\n CoreLogic\u2019s Cordell costing team estimate construction costs increased 7.3 per cent over the 2021 calendar year \u2013 the largest increase since 2005.<\/p>\n Research Director at CoreLogic, Tim Lawless, said the surge in approvals related to HomeBuilder is transitioning to actual construction activity and it will take some time for this \u2018bulge\u2019 in the pipeline of approved housing supply to work its way through to completion.\u00a0<\/p>\n \u201cIt\u2019s reasonable to expect these higher costs of land and materials will ultimately be passed on to the consumer in the form of more expensive new housing and costlier renovation projects,\u201d he said.<\/p>\n \u201cSome prospective buyers or renovators may simply delay or scrap their decision to engage with the market due to heightened costs and uncertainty of timing.<\/p>\n \u201cFor those already involved in a building or renovation project, there is a good chance they could be facing cost blowouts and\/or delays in the project timing.\u201d<\/p>\n National variations<\/strong><\/p>\n More than 135,000 applications were made for the federal government stimulus package, with Victorians responsible for around 30 per cent of these.<\/p>\n The impact of supply bottlenecks has been huge but also varied \u2013 some trades and materials were barely impacted while others have been severely limited.<\/p>\n Mr Shifman said early on it was timber supplies which were severely restricted, though this appears to have abated somewhat in early 2022, due to a reducing number of new commencements from the peak and an increase in timber imports.<\/p>\n Steel prices also grew very substantially \u2013 over 30 per cent since the start of the pandemic \u2013 based on overseas price increases.<\/p>\n More recently, plasterboard has faced supply issues that have delayed fit outs and completions.<\/p>\n The various lockdowns around the country have also had a major impact, affecting some states more than others.<\/p>\n \u201cVictoria was particularly strongly affected \u2013 while construction was able to continue through majority of the lockdown periods, restrictions such as the metro\/regional \u2018ring of steel\u2019 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,\u201d Mr Shifman said.<\/p>\n Alex Huang, APDA President<\/p>\n<\/div>\n President of the Australian Property Developers Association (APDA), Alex Huang, said the larger capital cities were feeling the heat the most.<\/p>\n \u201cGenerally speaking, the larger population centres along the eastern and western seaboard of Australia traditionally have more demand compared to Tasmania, the ACT, Top End or South Australia, as these are places where more people want to build and settle in.<\/p>\n \u201cWith more demand, it will surely come with more pressure, so the material supply chain issue is felt nationwide but some states would undoubtedly have lesser labour hire issues than others and suffer less of a cost and time impact.\u201d<\/p>\n Brakes and accelerators<\/strong><\/p>\n While the Reserve Bank of Australia maintained a dovish stance on monetary policy, RBA governor Philip Lowe said while the omicron variant outbreak had delayed the recovery of the economy, he was confident it had not been derailed.<\/p>\n Alex Lim, APDA Secretary General<\/p>\n<\/div>\n Alex Lim, APDA Secretary General, said the supply bottlenecks were an \u201cextremely serious\u201d issue in terms of delaying construction, affecting build quality and developers attracting and retaining new business and required a juggling act by government, banks and the RBA.<\/p>\n \u201cConstruction costs have increased dramatically and land prices have in turn also increased, all due to inflation, and now interest rate increases may cause a kneejerk reaction.<\/p>\n \u201cWe are waiting to see the banking sector response to the inflationary pressures to this temporary industry setback and the RBA\u2019s cash rate will definitely need to be raised to keep inflation at bay,\u201d Mr Lim said.<\/p>\n His colleague at APDA, Mr Huang, feared the dominoes could keep falling if government policy didn\u2019t respond effectively.<\/p>\n \u201cI see this more of a chain reaction setting off one after another, with the pandemic having forced many governments to introduce policies and stimulus that will ultimately cause inflation.<\/p>\n \u201cThe Australian government is trying to keep the economy alive while keeping inflation at bay.<\/p>\n \u201cThis is like trying to balance both feet on the gas and brake pedals at the same time but ultimately everything flows from the top down, with government policies dictating credit liquidity, interest rates, borders and labour hire availability.<\/p>\n \u201cThese will in turn affect the property prices and demand, which are the main levers of the residential construction sector,\u201d Mr Huang said.<\/p>\n![\"Maxwell](\"https:\/\/www.apimagazine.com.au\/media\/misc\/Maxwell-Shifman.jpg\")
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<\/p>\n![\"Alex](\"https:\/\/www.apimagazine.com.au\/media\/misc\/Alex-Huang.jpg\")
<\/p>\n![\"Alex](\"https:\/\/www.apimagazine.com.au\/media\/misc\/Alex-Lim.jpg\")
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