Government housing stimulus packages have helped resuscitate the ailing residential building industry, but will the demand be short-lived?
Residential builders expected some increase in buyer activity after government housing grants were introduced amid a suite of COVID-19 stimulus measures, but the level of demand caught many by surprise, and somewhat unprepared.
Reports of customers being turned away, or of new home build deposits being returned, were unheard of a year ago.
Even more unlikely, would be the sale of several months worth of new home packages in just two months.
But that’s been the reality for pockets of the state’s residential market, where activity has been amplified as a result of state and federal government housing stimulus measures in response to COVID-19.
In August, Western Australia led the country for new home sales; the Housing Industry Association (HIA) recorded a 91.1 per cent increase in WA’s new home sales for the six months to August, and a 175 per cent jump in the three months since the HomeBuilder and Building Bonus packages were announced.
However, new home sales in WA fell for the month of September, but that decline followed moves by many builders to cap monthly sales amid the demand rush, according to HIA WA executive director Cath Hart.
It’s a stark contrast to what Ms Hart said followed six of the toughest years on record.
Industry leaders have urged patience in recent years, with market analysts at times promising a steady recovery was on the horizon, only for the market to bump along the bottom for another year.
Those conditions seemed set to repeat earlier this year when the pandemic struck, with the HIA slashing its initial FY20-21 forecast of 20,000 new homes for WA to fewer than 10,000.
Those fears soon dissipated following a 211 per cent spike in new home sales recorded during the month of June.
That increase was a clear signal government housing stimulus packages were kicking into gear, with the HIA revising its FY20-21 forecast to 15,950 new dwelling starts: representing a 15 per cent improvement on FY19-20 (which delivered about 13,800 new dwelling starts).
With consumer appetite no longer an issue, in the short-term at least, one of the biggest challenges facing the industry will be its ability to adapt to, and sufficiently cater to, the sudden peak in demand following years of subdued activity.
It’s a challenge the state’s biggest residential builders believe they’re navigating reasonably well, so far.
BGC Housing Group executive general manager Michael Bartier’s confidence is bolstered by the group’s restructure over the past year, which involved consolidating 12 homebuilding divisions and development brands, as well as investing about $4 million in a new showroom to position the group for future growth.
That included the merger of BGC Housing Group with Ventura Home Group earlier this year, with Ventura the state’s third largest builder in 2018-19 as ranked by WA home starts in the HIA Housing 100 Survey.
Historically, BGC and Dale Alcock’s ABN Group have taken the two top spots on the HIA Housing 100 Survey, with BGC delivering the most WA dwelling starts (2,332) for the last financial year, followed by ABN Group with 1,540 WA dwelling starts, but 3,247 overall nationally (see page 37).
BGC’s final FY19-20 tally was significantly boosted by the group’s record month of new home sales in June of nearly 1,000.
“The business is incredibly match-fit at the moment and we have a really strong pipeline of work over the next 12 to 18 months,” Mr Bartier told Business News.
“Stimulus somewhat turbocharged demand in WA and maybe a little bit of that has been pulled forward, but … I still firmly believe the WA property market was showing strong signs of recovery even pre-COVID.
“Combine that now with a shortage of housing stock and some of the lowest rental vacancy numbers we’ve seen, I think the outlook is really bright.”
Mr Bartier said June and July were the strongest sales months for the company, with August still about 20 per cent above pre-COVID levels. However, he expected sales to slow across the remainder of the year.
“That’s not because demand isn’t there,” Mr Bartier said.
“It’s solely because you’ve got that stimulus deadline, you can only process so much work.”
To be eligible for the state government’s $20,000 Building Bonus grant, applicants must enter into a contract (which requires land to be titled) to build a new home by December 31 2020, with on-site work required to start within six months of signing the contract.
“Even when stimulus comes to an end, irrespective of if it is extended, the greater driver for WA will be when the borders open and people can migrate back to the state; we’ve got such strong employment opportunities, we’re safe and clean, have affordable housing and a comparatively low median house price compared to the east coast,” Mr Bartier said.
Homebuilding industry groups including the HIA and Master Builders Association have been lobbying the state government to extend those build start times in order to smooth out demand and stretch the time of construction activity.
The groups have also argued that an extension would enable more eligible homebuyers to capitalise on the grants, following reports there had been nearly 300 customers in recent weeks facing cancellations by their chosen builders.
The HIA said jobs were being cancelled and deposits returned due to builders’ concerns their projects wouldn’t meet the required build start times, compounded by shortages of titled land and labour.
“Coming off such a low base of activity, the ABN Group has put in place certain procedures and limits to manage activity and sales levels in order to be able to deliver for our customers.
“We’ve geared up and immediately taken on more staff to cope with demand.”
Mr Alcock said customers’ capacity to secure finance approval was one of the major delays the group was experiencing before being able to start construction.
In August, seasonally adjusted Australian Bureau of Statistics data found owner-occupiers set a record for new loan commitments for housing – borrowing 13.6 per cent more ($16.3 billion) – the largest month-to-month rise on record.
“Lenders are not sufficiently geared to deal with the current volume of applications, and this is leading to a doubling of approval times,” Mr Alcock said.
“We continue to work with our industry associations and also directly with the state government to ensure that these pressures are well understood.”
Mr Alcock said demand had been widespread across the metropolitan area but also the South West, with about half of ABN Group’s construction occurring in Victoria, where he said demand remained strong despite total lockdown.
While Alkimos, Brabham and Baldivis were among BGC’s top-selling suburbs in WA, the South West had also emerged as a hotspot, with Dalyellup and Australind – both on the fringe of Bunbury – featuring in the group’s top 10 selling locations.
Real Estate Institute of Western Australia data shows housing demand is heating up at the top end of the state as well. In the year to September, five of the top 10 suburbs in WA to have recorded the largest growth in median house prices were in Karratha.
Whether that demand has translated to the home construction market will be revealed in the upcoming release of HIA’s residential builder survey of new home build locations.
In the meantime, the sale of a 2.75-hectare development site in Karratha could provide an indicator.
CBRE and Axia Corporate Property were appointed to sell Lot 9,000 Tambrey Estate late last month, on behalf of Mr Alcock and Garry Brown-Neaves (who sold his interests in ABN in 2016).
The site provides scope for a 41-lot residential development, which sits adjacent to the Tambrey Primary School.
Mr Alcock said ABN completed a residential development on the site years earlier via its manufactured housing business, TR Homes, which it sold in 2014.
“We’ve held it during the quieter period,” he said.
“With activity increasing up there now, it’s an opportunity for someone who’s operating there to take advantage of the improving market.”
“More people are moving there because they’ve discovered they can work remotely, they can work online and would like to be in a location where they can go for a surf in the morning or go mountain biking,” Mr Walter said.
“And with that, we’ll need houses.
“Throughout what has been a challenging period, one thing that has become absolutely clear is that WA is a great place to live.
“Once some of these restrictions are eased, if we position ourselves in the right way I can see WA becoming a real destination for people to migrate to.”
JWH Group has slipped down the housing start volume numbers, falling from fourth largest builder to fifth in the recent financial year (see page 37).
However, Mr Walter said volume wasn’t necessarily a priority for the builder, with a recent restructure prompting a repositioning of some brands, as well as the refresh of its management team.
That move also involved JWH’s founder Julian Walter (Jay’s father), taking a back seat and acting as chair.
Jay Walter said the builder, which includes the Oswald Homes and WA Country Home Builders brands, had prioritised the more established housing market, rather than targeting first homebuyers, a cohort he said had often been the cause of a competitive race to the bottom.
First homebuyers had taken advantage of the more than $69,000 worth of incentives, comprising the $45,000 federal and state government grants as well as the additional $10,000 first homebuyer grant and stamp duty relief.
But established buyers were also cashing in, Mr Walter said.
Beyond new house and land sales, the government grants had stimulated demand in the brownfields market, he said, with JWH brand Plunkett Homes recently demolishing a house it had built in 1950 to build anew.
The state’s property groups continue to call for extensions to stimulus timeframes, to allow a longer period from contract signing to site commencement. Photo: Gabriel Oliveira
Near city sites
The group specialises in infill subdivision, among other services.
“It’s [the stimulus] really been the sugar hit, the starter motor to get the engine running again,” Mr Fleskens said.
“If you dig deeper into the data, the land sales have gone back to pretty much what they were before the grants, but house and unit sales are double.
“I had a year’s worth of clients come through my doors in the last three months looking for subdivisions.
“But then there’s just nothing on the market to buy.”
As a result, Mr Fleskens said the group was now purchasing land off-market.
The state government’s decision to continue the moratorium on rental evictions was a likely factor restricting the supply of more established housing stock being brought to market, he said.
Despite WA’s borders remaining closed through to next year, Mr Fleskens was still confident WA would achieve the population growth needed to sustain property demand, with many fearful stimulus-induced demand could potentially deliver another hit to the industry.
“We’ve had five years of losing people interstate every year and we’ve also had five years of pretty much no one coming in, internationally,” he said.
“Now we have no-one leaving interstate … surely numbers will show in March that we’re positive for the first time since the boom.
“We’re having to increase the [intake] cap from 500 to 700 people per week … if that continues, that’s like 50,000 people per year; the last time we had that was the boom.
“It’s [the stimulus] a good thing because it is creating more jobs, more work and more confidence in the industry … but it’s also not sustainable because we don’t have the throughput of labour to actually deliver this in a timely manner.”
Training commencements for construction trades in WA has been in rapid decline since 2015, largely reflective of subdued building activity.
Master Builders Association WA executive director John Gelavis said labour shortages posed a significant challenge for builders over the next six to 12 months of stimulus delivery, particularly wet trades.
That included bricklaying and plastering, trades Mr Gelavis said had lost significant numbers of experienced subcontractors over the past five years as the market declined.
“The canary in the coalmine is the approvals data,” Mr Gelavis told Business News.
“The approvals data is really strong, so we’re really seeing the market move now. “
Dwelling approvals rose 34.9 per cent in WA in August, increasing the number of approvals to a level the HIA said was last experienced in 2018.
The increase in approvals activity was promising, Mr Gelavis said, although it was still a far cry from the numbers seen during the 2014 boom (see graph).
Following a building securing approval, Mr Gelavis said it was typically another month before a housing start, with builders now starting to feel the labour pinch.
In an attempt to navigate those shortages, both the state’s largest builders, BGC and ABN Group, have upped their efforts in the apprenticeship space.
Mr Alcock said the group planned to take advantage of the support announced in the federal budget last month. Under the federal government’s $1.2 billion Boosting Apprenticeship Commencements initiative, builders can receive a 50 per cent subsidy of up to $7,000 per quarter for apprentice wages until September 30 2021.
ABN has 85 apprentices in training, which Mr Alcock said would now be increased by approximately 30 per cent.
Similarly, BGC last week announced it had committed to employing up to 50 bricklaying apprentices over the next two years as part of its new apprenticeship program run in partnership with BGC’s Brikmakers and the Australian Brick & Blocklaying Training Foundation.
Even with those apprenticeship numbers, Mr Gelavis said there was still significant pressure on builders to find the labour needed – compounded by border closures restricting interstate migration – to adequately deliver new homes.
Mr Gelavis was hopeful industry could continue to work with government to secure an extension to stimulus package delivery deadlines.
In September, the state government announced $30 million of additional funding for the Building Bonus, taking total investment in the initiative to $147 million.
“We need more time,” Mr Gelavis said.
“It’s a nice problem to have [increased demand] because we’re going to create jobs and opportunities.
“So from some of the leading indicators I’m cautiously optimistic about where the future lies for housing.”