EXCLUSIVE TUE 28 SEP 21

While the national construction sector is struggling with constrained supply of timber and steel, there’s still plenty of bricks in the supply chain.

The problem is there are not enough bricklayers to lay them.

In fact, the sector is facing a dearth of labourers of all types—and the issue will only be exacerbated by the two-week halt to construction in Victoria announced last week.

Housing Industry Association chief economist Tim Reardon says there have been periodic building material shortages this year, with timber rather than bricks the big issue.

“That’s taken time to resolve and hopefully we’ll see an easing of timber shortages towards the end of this year,” he says.

“But bricks are made almost exclusively in Australia. We do import some bricks from overseas, which tend to be high-end, artistic-style products, and shortages are fairly common, even in a normal year.

“Constraints on international shipping are causing disruptions to trade, impacting all imported building products.

“So any perceived shortage of bricks reflects more the impact of lockdowns on freight and trade, rather than a structural problem with supply of bricks.

“The construction sector is booming, but when I say that to brick suppliers they ask, ‘when’s it coming? We’ve increased our capacity and we’re making bricks in anticipation of rising demand, but we can’t see this in our operations’. So there’s ample capacity.

“From that point onwards, the boom in home construction will slow. By the end of 2022, the number of homes under construction will be back to normal.”

Brett Lavaring from The MJH Group, which operates brands across Australia including McDonald Jones Homes, Mojo Homes, Brighton Homes, Weeks Homes and Wilson Homes, confirms there is ample supply of bricks but “we are seeing some challenges securing a labour force to lay bricks across Queensland, NSW, South Australia and Tasmania.”

SUE WILLIAMS SEP 29, 2021

When making an investment decision, everyone researches the property, the location and the interest rate, but many forget completely to consider the person who rents that home and provides the income.

And that’s the difference between a minimal landlord and one who’s going to earn the best reputation and attract the best tenants for the longest periods.

“We find a lot of owners focus on problems with the property,” says Stephen Fitzsimon, head of growth at Melbourne Real Estate.

“They complain about paying $200 to have a plumber called out when they should be concentrating on the fact that they’ve made capital gains of $60,000 in the last 12 months.

“But it’s about seeing both sides of the story. They need to understand that, in most circumstances, their tenant is probably the next generation, like their own children. They’ve grown up in a time when they weren’t taught how to unblock a sink or fix small problems around the house, so that’s why they’re going to call to get problems sorted.”

Of course, 70 per cent of investors hire real estate agents to manage their properties, so it’s just as important to pick a representative who’s going to be considerate and responsive to tenants, too.

“Check the online reviews for different companies to make sure they’re good, and then pick four at random and ask the agency to put you in touch with the reviewers directly to make sure they’re genuine,” advises Toby Primrose, director of Property Management Melbourne. “And, once appointed, owners should make it clear to agents that they want to be very mindful of tenants’ personal circumstances. At the moment, during COVID, we’ve had some owners happy to charge only half the rent for six months if they’re in difficulties, and we’ve had others who’ve refused, so the tenant has gone. But sometimes losing a good tenant can be more expensive in the long run.”

Also, think carefully about what you’re offering a tenant, recommends Tenants Union of NSW Leo Patterson Ross CEO. Make sure, for example, to have cash reserves ready to sort maintenance issues promptly.

“You’re providing a service of housing in exchange for rent, so you should act accordingly,” he says.

“Think about what you’re offering. Some tenants might really appreciate having the option of a longer fixed term, with the security and stability that brings, and they might be happy to pay a premium for that.

“Flexibility is also appreciated. Allow them to paint walls if it doesn’t reduce the value of the property. That can make a real difference to the experience of living in a place.”

So, take the time to learn about the tenant.

A couple might be renting your apartment because they’re having their own home renovated, so they will really appreciate being able to extend the term if unforeseen problems arise, suggests Ray White Group CEO of property management Emily Sim.

“Or often it’s tenants moving to an area so their children can go to a certain school,” she says.

“So, they might be looking for a really long-term tenancy, which can be a really great arrangement all round.”

PARTNER CONTENT MON 27 SEP 21

The effects of Covid worldwide have caused widespread construction material shortages.

The situation is unlikely to ease anytime soon because post-Covid recovery activity will increase demand further.

Rohrig, a commercial construction company based in Brisbane and Sydney, said they didn’t expect to see costs return to pre-pandemic levels—and there are more increases to come before prices peak.

As always, supply and demand have driven price movements but the worldwide chaos of Covid has created unprecedented conditions for both the supply and transportation of materials.

While the construction industry has maintained some level of productivity throughout the ever-changing conditions of the pandemic, the cost of materials, lack of availability and unusually long lead-times have put pressure on suppliers, subcontractors, and builders alike.

The volatility has been widespread and continues to develop with ongoing notices and forecasts from all areas of the market developing daily.

Validity periods of quotes have reduced significantly and are down to 14 days from an old normal of 30 to 60 days. Some suppliers can only provide a validity of only 24 hours for certain materials.

The cost of structural materials like timber, reinforcement steel and structural steel moved first. They have continued to increase in price over the past nine months and have soared by 75 per cent, 60 per cent and 80 per cent respectively.

20 Sep 2021 Ian Verrender

Break out the lifeboats and prepare for a river of crocodile tears in the next few months as we gear up for a federal election.

It has become something of a ritual. Every three years, housing suddenly becomes a red-hot political issue.

We will, no doubt, hear promises from both sides — to help first home buyers via grants, handouts, and other subsidies.

The problem is, generally, that tends to make affordability worse. Throwing money at first home buyers only adds to prices and, instead, becomes a grant to those selling their property.

If we’ve learned anything from the past week, the Australian housing market is on a one-way trajectory into outer space and no one — neither the Reserve Bank through monetary policy, nor the government through tax reform — is in any mood to alter its course.

The June quarter saw the biggest three-monthly rise in national capital city housing values since the Australian Bureau of Statistics first began collating the data almost 20 years ago, with growth averaging 6.7 per cent.

With official interest rates likely to remain close to zero for the next three years, the sheer weight of money and easy lending are likely to continue, further fuelling the frenzied demand for real estate.

And once again, investors are re-entering the market, squeezing out new entrants.

Relations between our two main arms of economic management — the Reserve Bank of Australia and the federal government —  appear a little frosty right now. And neither appears willing to take responsibility for the incredible spike in real estate, or to take any action on keeping it in check.

Last week, Treasurer Josh Frydenberg agreed it might be a good idea to conduct a review of the Reserve Bank, given it had consistently failed to meet its key inflation and wages targets for the past five years, although he admitted it had performed “very well through this crisis”.

The idea of a review was floated in a report from the Organisation for Economic Co-operation and Development — now overseen by former finance minister Mathias Cormann — on the Australian economy and follows widespread criticism the RBA had kept rates too high in the lead-up to the pandemic.

Later that day, RBA governor Philip Lowe, in a speech on how the economy was faring through the latest wave of COVID infections, batted away suggestions interest rates should be hiked to cool the red hot housing market.

Higher interest rates, he said, would certainly help tame housing prices. But it would come at the cost of “fewer jobs and lower wages growth”.

The graph shows the incredible amount of cash banks now are lending for housing, which explains the recent crazy price rises. And it’s clear investors are back in the game, lured by the whiff of easy capital gains.

Last week, however, the idea of macro-prudential controls didn’t even rate a mention.

There’s an inconvenient truth around housing affordability. While politicians love to splash money around during elections, there are only two effective ways to make housing more affordable — and neither come without problems.

Either housing prices have to drop, which can damage the economy and create havoc in the banking system, or wages have to grow faster than real estate, which can trigger an inflationary spike and cause a rise in interest rates.

The RBA is banking on the second option; that its ultra-low interest rates will spur employment and wages growth. But it’s hard to see how that will work alone, without the brakes being applied to housing investors or home loans in general.

Then the kicker. Housing problems were largely caused by factors other than monetary policy and need to be addressed elsewhere.

“The factors include: the design of our taxation and social security systems; planning and zoning restrictions; the type of dwellings that are built; and the nature of our transport networks,” Dr Lowe said.

In case you missed it, he was talking about government. If he needed any backup, it was in the very same OECD report.

Negative gearing and the 50 per cent capital gains tax discount had distorted investment decisions, it found, and encouraged Australian households to plunge into real estate.

The end result? Our household balance sheets are far too heavily exposed to property.

Fine sentiments. But there are only two chances those tax incentives will be wound back any time soon. None and Buckley’s.

The last federal election dealt a fatal blow to any chance of property market tax reform. With so many Australians so exposed to real estate — ATO figures suggest more than 2 million Australians own investment properties — the Opposition’s policy to wind back the tax incentives became an easy target for a government desperate for an edge.

Having been trounced at the election, the ALP has since dumped its real estate tax reforms, never to be resumed. That means the tax incentives are here to stay. And that means investors will continue to pour cash into residential property, driving prices higher.

Which leaves the ball in the RBA’s court. While Dr Lowe has rejected rate hikes to tame the market, there are other measures available to our monetary mandarins.

As the key member of the Council of Financial Regulators, the RBA was instrumental a few years ago in bringing property investors to heel. And, if it decided soaring housing prices were a threat to economic stability, it could do so again.

The banking regulator, APRA, also part of the Council, could be directed to rein in bank lending for real estate. It could insist on bigger deposits. Or limit the amount of interest-only loans banks could extend, as it did four years ago.

For years, the RBA rejected the use of these types of measures — known as macroprudential controls — arguing they didn’t work. But regulators were forced to adopt the measures twice, between 2014 and 2018.

As you can see from the graph, they worked with devastating efficiency. In 2015, investors came close to eclipsing owner-occupiers on home loans. But the limits on banks lending to investors and on interest-only loans, the most popular type of investor loan, forced a sharp reversal.

Many of the RBA’s critics tend to ignore its unique charter and obligations. Most central banks are tasked with just one role; to keep inflation under control.

The RBA, in contrast, has three mandates, each of them mammoth, that can run counter to each other. It somehow must keep the currency stable (by ensuring inflation ranges between 2 and 3 per cent), contribute to full employment and look after the prosperity and welfare of all Australians.

Housing has become a flashpoint for our economy, so you could argue that falls into the RBA’s third remit. But if it pulls the interest rate lever to take steam out of housing, that will impact its performance on the first two.

And if it is going to be the subject of an inquiry around its performance, it’s likely to stick with a strategy that will deliver on its core mandates. Clearly, it believes it is up to governments to do something about hauling back the tax incentives for property while it concentrates on inflation and wages.

The end result? All hands off when it comes to property.

TED TABET WED 22 SEP 21

Parents are paying a premium up to 20 per cent more than the average for homes in the catchments of highly-regarded schools.

According to Domain’s annual School Zones Report, house prices in 88 per cent of primary school catchment zones and 94 per cent of secondary school catchment zones increased during the 12 months to July.

Across combined capital cities, 46 per cent of primary and secondary school catchment zones had an equal impact on house prices and outperformed the growth of the suburb they are in.

Domain’s chief of research Nicola Powell said the pandemic had helped supercharge school catchment prices with flexible working allowing young families to relocate to suburbs with easy access to beaches, parks and schools.

“It’s astonishing to see that starting on a high base of house prices, one-in-10 school catchment zones are achieving 10 to 20 per cent more than the suburb they are located in,” Powell said.

“It shows that Australians are prepared to pay for access to public schools.”

Sydney and Melbourne topped the class for the greatest school zone house price growth, dislodging Perth, reflecting the stronger property market across the year in both states.

The top 10 growth rates in school catchment zones across capital cities ranged from 38 per cent to 46 per cent and were spread across inner, middle and outer suburban areas.