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No Issue With Bricks, It’s the Tradies

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.”

Reardon attributes the boom to a number of factors, including the federal government’s HomeBuilder grant, which has ended but projects from it are still working their way through the construction sector; as well as low interest rates.

He expects buoyant conditions to continue.

“The pandemic is prompting households to make two decisions,” Reardon says.

“They are seeking lower-density housing so they have more living areas, more space to work from home, additional bedrooms for kids to study at home and larger back yards. There is a shift from high-density housing towards lower-density living.

“They are also saving like they never have before. So there’s a large amount of pent-up demand for expenditure and when the economy opens, people will continue to invest in either renovations or new home construction.”

Brickworks’ managing director Lindsay Partridge agrees timber and steel shortages, rather than brick supply, is restricting the building sector. The business recently announced record underlying net profit after tax of $285 million, up a stunning 95 per cent on the previous year.

“Lockdowns in NSW and Victoria mean you’re not getting the full number of trades onto site because workers cannot move from state to state, so that’s slowed things down.

“This is a real problem in Western Australia where the number of new houses being built has doubled in the past year, and to some extent in South Australia.”

Partridge says he was selling a million bricks a day to customers in NSW before the lockdown began on July 21.

“Suddenly, we were only selling 200,000 bricks a day, so we were stockpiling 800,000 bricks a day.

“We could only do that for three weeks because our yards were full, so we had to take plants offline.

“We’re now supplying about 85 per cent of our usual daily sales and we’ve been able to bring some of that plant back online. So it’s a constant balancing act.”

Labour of love

State borders and lockdowns aside, the national border closure is creating a labour shortage in construction, which, Partridge says, will have flow-on effects to housing demand.

“There are no skilled workers coming into the country, which eventually will mean we won’t need to build as many houses.”

Recent building approval figures show this effect has already started. The total number of dwelling approvals fell 8.6 per cent in July, while the number of approvals for private sector houses fell by 5.8 per cent.

“While the speed at which new homes are being built peaked in April, there are more homes currently under construction than we’ve ever had before, by a large margin,” Reardon says.

“And that’s going to continue until the end of this year. At that point, the number of homes that are reaching completion will be higher than the number of homes that are commencing construction.”

The head of advocacy and policy at the Recruitment, Consulting and Staffing Association Australia and New Zealand, Brooke Lord, says while lockdowns have created a labour shortage in construction, long-term, systemic problems are a contributing factor.

“Apprenticeship numbers have dwindled during the past six years, which is putting enormous pressure on talent in the construction sector.”

There were 266,565 apprentices and trainees completing their training in Australia as at June 30, down 3.9 per cent on June 2019 figures, according to the National Centre for Vocational Education Research.

Lord says enhanced Centrelink payments are another factor. While JobSeeker has ended, when it was available some people on lower salaries made a choice to accept payments through enhanced social welfare mechanisms rather than work.

No new normal

While NSW and Victoria have mapped out some steps for re-opening post-lockdown, it’s not yet clear when construction activity will return to a more normal footing. Partridge isn’t expecting the economy to snap back when lockdowns end.

“We’re going to have rolling shutdowns and lockdowns for the next six months. Supply constraints of imported materials will also continue because shipping is in chaos. It will take us six to 12 months to emerge from this and pent-up demand is going to take a year or two to work through.”

Lord says labour shortages will continue to be challenging for the next two years.

“The labour market is under enormous stress. This won’t change until border restrictions ease, the national border opens and the flow of workers, holiday visa makers and overseas students come back.”

It may be a long two years for the construction sector.

CategoriesNews

How to be the best landlord to your tenants

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.”

CategoriesNews

No End in Sight for Material Shortages

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.

This has followed by large spikes in the cost of cold-rolled products and base metals as contractors looked for alternatives for hard-to-get materials and pushed the already strained demand higher.

Prices for sheet metal and steel-framing products have increased up to 20 per cent this year so far and a further 20 per cent increase is scheduled for December.

It is a similar story for structural purlins, which have increased by 70 per cent since January and are forecast to increase a further 30 per cent by December.

In addition to base material hikes, the cost of logistics has increased significantly.

In January, a 12m (40’) container from China to an east coast port cost approximately $3000. The same load now costs $11,500. Further to cost increases, delivery can now take up to nine weeks compared with three or four weeks before the pandemic.

How industry is responding

Rohrig’s business development manager John Demnar said they were working diligently with their clients and architects to find the best solutions to keep project timelines and budgets on track.

“The level of volatility in the market is applying pressure to all stakeholders associated with every project and we are focussing on working more closely with all parties to help manage the price and delivery risk,” Demnar said.

Most suppliers and merchants are also being proactive and doing whatever they can to identify future increases early so contractors can allow for them when pricing work.

Despite everyone’s best efforts, there is a limit to what can be done to mitigate the greater economic forces.

For those with projects in the pipeline, early engagement will help identify market pressure and provide better insights into how things have affected overall costs and timelines.

CategoriesNews

Why the Reserve Bank and government are in no mood to rein in property prices in booming market

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.

CategoriesNews

Schools Supercharge Suburb Property Prices

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.

Sydney school catchment zones accounted for five of the top 10, with Melbourne and Queensland and Perth making up the rest.

“We know that as part of the property-decision-making process, parents and investors consider the location of a potential property in relation to a school catchment zone,” Powell said.

“When people are looking for a home, they’re looking for a lifestyle, and education is a big part of that picture, be it in the inner-city suburbs or the coastal regions of Australia.”

Hobart had the biggest percentage of primary school catchment zones which outperformed the suburb they are in while Brisbane had the biggest percentage of secondary school catchment zones which outperformed the suburb they are in.

Prices around Kunyung Primary School, on Melbourne’s Mornington Peninsula, and those around Barrenjoey High School in Sydney’s Avalon Beach, gained the most.

Melbourne home prices are now tipped to surge following the lifting of a seven-week ban on home inspections over the weekend, due to pent-up buyer demand and a lack of stock.

Meanwhile, despite the city being in lockdown for more than two months, housing values have continued to grow in Sydney.

 

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