This article is from the Australian Property Journal archive
WHILE 2021 is on its way to becoming a record year for detached housing construction, a crisis is mounting in sector.
According to HIA economist, Angela Lillicrap, the 12 months to September 2021 will mark a record of 146,000 detached houses commencing construction, over 20% higher than the previous peak in 2018.
The HIA’s economic and industry outlook report anticipates high levels of activity in the industry through to at least the second half of 2022, with renovation activity also at an all-time high that will likely remain elevated for years.
“This level of activity is not likely to be seen again for many years, if not decades. The combination of factors that have led to this boom is unprecedented and are driven by HomeBuilder and low interest rates as well as a change in consumer preference away from high density areas,” said Lillicrap.
Meanwhile, as Lillicrap notes, the main hurdle in the industry is no longer the slump in demand experienced throughout with peak of COVID-19 last year, but instead meeting this high demand with supply.
Supply of labour, materials and land to satisfy heightened demand, are expected to further drive up costs, leading to long delays, shortages and price gouging.
The Association of Professional Builders (APB) is already reporting building companies are losing money thanks to price-hikes, which is only driven higher by the current market conditions of low interest rates and increased phenomenon of buyers experiencing FOMO.
“The latest boom has spurred hundreds of additional projects and some builders feel their suppliers are taking unfair advantage of the situation. When supplies are low, charges inevitably go up, but not everyone feels the higher price tags are reasonable,” said Russ Stephens.
According to Stephens this has led to costs surpassing budgets, with builders in many cases being forced to bear the additional costs, eating away at net profits.
“No business should be forced to press on with starting a project knowing they will be running at a loss, so we’re urging members to be cautious when signing fixed price contracts, and to consider inserting cost escalation clauses that will protect their businesses from the rapid inflation that we are experiencing in the construction industry,” said Stephens.
The APB is now providing private clients with an advanced cashflow forecasting tool, to enable a more accurate prediction of future revenue.
“The extension of HomeBuilder’s commencement deadline will help limit the impact of constraints imposed by land, labour and materials and ensure the elevated volume of detached homes will be sustained for longer,” added Lillicrap.
While detached housing booms, multi-unit building commencements are expected to fall in the same period, largely as a result of stalled overseas migration thanks to pandemic derived border lockdowns.
“If overseas migration returns sooner, or faster, than anticipated, then the trough of 93,500 new housing starts in 2023 will not be as deep as currently forecast. Equally, if the restrictions on skilled migration continue into 2022 the depth of the emerging slowdown in new detached starts will be exacerbated,” concluded Lillicrap.
