Australia has been in the thick of a two-year long property boom, spurred on by pandemic-fleeing returning residents, record low interest rates and a strong sense of FOMO (fear of missing out) amongst buyers.
In a healthy economy, that rate of growth was always going to slow down at some point. In recent months it has done that across most of Australia, with prices stabilising in capital cities.
Alongside this we have seen another effect, which has been a steady decline in the number of approvals for new homes being built. This means the residential construction industry is beginning to slow down.
This is not a new phenomenon, in fact approvals had started to slow since hitting a peak in March 2021. In the three months leading up to June 2022 however, there was a 2.4% decrease every month in the number of new homes receiving building approval. In annual terms, total approvals are down 32.4% since this time last year.
Why Have Building Approvals Dropped?
Increase in cost of raw materials: Times have been tough for the construction industry over the last year or so. The Covid-19 pandemic placed severe restrictions on supply line chains, which saw key materials such as timber and steel soar in price.
Master Builders Australia stated that the cost of building a new home rose by 20% in 2021. These have been some of the highest increases since 2001, and in most cases builders have had to wear those costs. This has caused many construction companies to fold and created a hesitancy in taking on more projects.
The Morrison Government’s Homebuilder Program: This was designed to boost the building of houses throughout the covid pandemic. It did this, but it seems to have been a short-lived panacea. What happened is that the scheme, together with low interest rates, created high demand for new houses as Aussie’s signed up for building a new home in large numbers.
This led to a labour shortage in the industry, driving up employment costs as workers and subcontractors put their prices up. This contributed to a backlog of projects, as there simply hasn’t been the capacity in the building industry to take them on.
It doesn’t look like there’ll be a respite when it comes to rising prices either. According to Richard Temlett, Charter Keck Kramer associate director, “sentiment is that house building costs will increase by another 10-15% over the next 12 months”. This is largely to do with China’s COVID-zero policy and Russia’s ongoing invasion of Ukraine.
What Does the Drop in Approvals Mean for the Real Estate industry?
Although they’ll face challenges, the builders who have weathered the storm will be kept busy for many months to come working through the backlog of building approvals. With the builders busy and the cost of raw materials not likely to decrease at any time, it will be both difficult and expensive to organise a new build property for some time.
Many buyers looking to move onto a new chapter in their life will need to consider established homes rather than brand new homes. Particularly if they don’t want a long wait.
If you’d like to get in touch and chat about how this affects your plans for your next chapter in real estate, please get in touch with The Henry Wong Team®. Henry has been selling prime real estate on the southside of Brisbane for many years now and would love to have a chat. You can give him a call on 0412471588.
