Kenekt has helped project home builders move $2.6 Billion in property assets in the last 2 years. We have had a good run till now. Builders have got busier building rather than selling off-the-plan. But is the building market doing as badly as the media projects?
Don’t get me wrong. Times are hard. The cash rate has increased faster than ever in the last 30 years. The after-effects of the pandemic and the war in Europe are there to be seen. However, a record number of houses are being constructed at present. Close to 131,740 detached houses were built in 21/22, which is higher than ever before. Even though that is a fall of 6.7% from 20/21, it is still 8.3% higher than the previous peak in 17/18. A slowdown is evident, but as the graph below indicates, detached house numbers have consistently remained between 20,000 and 30,000 per quarter, and as the HIA housing forecast indicates, there is no indication of this changing significantly.
“There has been a clear shift towards lower density detached housing during the pandemic, and this trend does not appear to show signs of slowing.” - HIA Chief economist Tim Reardon. House and Land builders leveraged this trend during 21/22, which, together with government incentives, pushed the market up. Things have not been as bright in the last couple of months. But we do not see commissions coming down from $20K averages, and builders are starting to give discounts again on new off-the-plan sales. Land availability has improved together. Given the expectation of investments moving from equity to real estate, house and land builders may see their lot improve in the next few months.
People ask us why House and Land builders are struggling, with an undertone of insinuation, indicating that their greed has paid them right. It could be true for some, but it is mainly unfair, in my opinion, to blame builders. House and land, as an industry, is very competitive, meaning margins can be low. Builders want to make money through numbers and get hold of those numbers any way they can. It’s unfair to say they should not do so. I suppose they could have predicted the labour shortages, but it would have been hard for them to foresee the supply chain disruptions we have seen. Timber and Steel prices have gone up by 50%. Builders need to have fixed price contracts by regulations in many states. That leaves no avenue for negotiations when prices go up.
Australia does not have enough homes for people to live in. With immigration on the rise again (there would be 700K new visas issued in 22/23) and the rental situation what it is today, it's hard to imagine house and land falling from the $75 Billion (IBISWorld, 2022) that it is today. Off-the-plan house and land still remain the most affordable real estate investment and probably the most affordable means of owning your first home.