Franzen Tips # 1157 - It is More Than Just “Supply” Affecting Our Housing Crisis

It is More Than Just “Supply” Affecting Our Housing Crisis

 

Most experts agree that the biggest issue affecting Australia’s housing crisis for both purchasers and renters is the supply of enough dwellings. And as we all know, if demand outstrips supply, then up go the prices. This is good news for those selling their property or landlords wanting to increase their rental income but totally bad news for purchasers and renters. Plus, the cost of housing contributes to the inflation figures which affects us all.

 

The supply issue is extremely complex and Tony Richards of the Australian Financial Review recently wrote an extensive article which traces the history of Australia’s property supply since WWII. In short, over the last 40 years or so the ratio of new dwellings compared to population growth has been declining. BUT, during that time, demographics indicate a significant fall in average number of people per occupied dwelling, indicating more dwellings were required but not being supplied. Increasing the supply part of the equation is now extremely difficult to do in a short period of time. Mr Richard’s article gives the example of how complex it is for a developer in the Willoughby local government area who has to navigate through the council’s 150 page Local Environment Plan and 751 page Development Control Plan let alone attempting to have a parcel re-zoned for a higher density development which can be a 10-20 proposition.

 

However, as the title of this piece suggests, there are other new components to our housing crisis. Recently (and probably exacerbated by the pandemic) the cost of construction has increased dramatically. A restricted supply chain, increases in the cost of materials and a shortage of labour have all increased building costs significantly over the last two years. This has led to many construction companies, who have been contracted to fixed price contracts, going into receivership. At the end of June, it was estimated that over the last 2 years, more than 2,000 have gone into liquidation.

 

This week the ABC reported that Metricon, one of our major home builders, has terminated dozens of fixed-price contracts and asked the owners to sign new contracts for substantially more money. One elderly couple are reported to have been offered a new contract containing $266,000 in extra fees which is nearly 50% more than the original agreement. This crisis in the construction industry is likely to continue to have long term impacts on the property sector.

 

Locally of course we still see construction powering along with some still replacing the houses lost in the 2019/20 bush fires. Land is also now being advertised for sale in the new Saltwood estate in Rosedale with stage 1 reported to be sold out and new stages being released. With around 175 blocks to be built on, it will be interesting to see how quickly homes start popping up.