Home builders ready for recovery

Builder David Simpson is increasingly confident Western Australia has hit the bottom of its housing slowdown and forecasts better times ahead.

The Summit Homes Group managing director expects the next 12 months to bring a gradual rise in building activity across the board.

Following a drop in residential construction from record highs of more than 30,000 home starts in 2014-15, dwelling starts fell by a further 23 per cent in 2016-17 to 19,698, according to figures released by the Housing Industry Association. 

However, HIA has suggested the market could be on the mend, forecasting a steady uptick for at least the next four years, with dwellings starts in 2017-18 expected to increase by 2 per cent.

“We’ve had a tough few years,” Mr Simpson told Business News.

“But it’s just the cycle we’re in and we have dealt with that by becoming more competitive.”

The 39-year-old company has maintained its market share for another year and remains fifth on BNiQ Search Engine’s list of residential builders, despite home starts falling from 961 to 746 in 2016-17.

Mr Simpson attributes part of the company’s endurance to his increased investment in staff.

“Having good people is a key strategy of ours,” he said.

“We have put almost 300 people though training in the past 12 months; the internet is rife and there is so much research that clients can do now.

“The broad principle is if I can be the best employer and maintain and attract the best people then that will flow through to clients.”

Summit Homes Group was named one of Australia’s best workplaces for the third year running in August by the national Best Places to Work Study, and was the only WA-headquartered company and sole homebuilder to do so.

The business has also recently completed its new $20 million headquarters in Myaree, equipped with a larger showroom and a training room.

“I want to make the customer journey the best experience as possible, where finishes and designs will be in the one spot,” Mr Simpson said.

“The challenges we face are in meeting a changing environment; what’s the best product for the area? What’s the change in consumer needs?

“So we’ve really spent a lot of time adapting and building on a good reputation.”

And at Pindan, reputation has become an even more important selling tool, according to director of developments Nick Allingame.

Celebrating its 40th year of operations this year sparked a corporate restructure for the WA-based builder and developer, and brought with it a new identity for its Switch Homes brand, which was officially rebranded as Pindan Homes in September.

“Buyers are looking for strength in the brand,” Mr Allingame told Business News.

“Unfortunately there have been some builders that have gone under over the last couple of years, buyers want to have confidence that the builder they’re building with has been around for a long time and will continue to be around.

“I think the main challenge at the moment is consumer confidence, so past track record is key in this environment.

“It (the rebrand) was reflective of us tweaking the focus for Pindan Homes, and it helps reinforce that we’re an organisation that has been around for a long time.”

Mr Allingame said Pindan had also upped its promotion of customisation options off the group’s standard plans in order to attract more customers.

“We’ve noticed a pick-up of inquiries in the last three months, but it’s still not easy to get sales,” he said.

“Buyers are spoilt for choice and want to customise houses a lot more – we’ve always allowed people to customise but we’ve been a bit more overt with it and now use it as a strength.

“We like to think that part of the reason why we’ve been around for 40 years is that we can adapt to the market and we can solve things within our control, like meeting consumers’ different demands.

“But some things are outside of our control and some of that is dictated by the state and federal government and the general economy.”

Market challenges

Subdued population growth has been the main contributing factor to the declining trend in new home starts, growing just 0.7 per cent in the year to March 2017, with almost 1,000 people per month leaving WA to live in other states.

The local rental market has also had a substantial impact; Perth’s rent prices have been declining since 2013 and dropped 8.1 per cent in the June 2017 quarter compared with the same time last year.

BGC executive director Julian Ambrose said the tightening of lending requirements in the past 12 months had also worsened market conditions.

As the state’s largest builder, BGC has not been immune to the slowdown, with dwelling starts for 2016-17 down by nearly half in comparison to its figures for 2015-16.

“I don’t think the lending requirements or infrastructure for our industry has got worse, I think that’s stabilising, but the big bogey in the room is employment and banking lending requirements (for buyers),” Mr Ambrose told Business News.

“The big problem we have in WA always in this market is that the bank lending regime is set out of the east coast.

“So the banks are tightening their lending requirements based on what’s happening in Sydney and Melbourne – what’s happening there is not indicative of what’s happening in Perth.”

Mr Ambrose said high land prices were another challenge facing the sector and, as a result, BGC had not bought land for the past three years.

“What banks will lend determines what the overall package will be; whatever is left over from buying the land for the house determines what we can actually provide for buyers,” he said. 

“Urban infill has become more common and that’s also driven by the government’s desire to have transport oriented developments.

“We’re filling that gap as well; we started to build apartments on our own books around five years ago.

“When you look at the affordability problem, it generally lays with land.”

Master Builders Association housing director Jason Robertson said housing affordability was still the single biggest issue facing the residential sector, with house prices nationally growing 1.6 times faster than incomes over the past decade.

“We’ve suggested the debate language could be changed from housing affordability to land affordability,” Mr Robertson told Business News.

“If we look at affordable housing in WA, and taking note that we still have the highest numbers of first home owner activity in the country, there are other issues contributing toward the building of new homes.”

Mr Robertson said in WA construction costs had remained relatively constant over the past several years, but house prices had risen significantly, suggesting that land prices and taxes were accounting for that significant difference in cost.

For a greenfield development on the Perth metro fringe, Mr Robertson said the build costs had increased slightly, but since 2010 the price for land had effectively increased fourfold.  

“There’s been a lot of talk about building reform but that’s the wrong terminology, here everything starts and finishes with planning,” he said.

“The builders are the last cab off the rank; so if there’s poor planning, poor zoning, a lot of embedded land costs or significant issues with infrastructure and developer charges, that’s going to continue throughout the spectrum to people getting their new home built.

“One of the primary focuses for the state government will be to really look at meaningful and sustainable planning reform, I think that will go a long way to addressing affordability.”

Speaking at a recent Property Education Foundation event, Peet regional general manager development Paul Lakey said additional planning reform was needed in order to facilitate a diversity of dwelling types.

“In Adelaide, Peet is trialling a number of new initiatives such as timber-framed apartments and freehold houses on 55-square metre lots,” Mr Lakey said.

“We would love to also introduce these concepts into WA to allow for affordability and diversity but our current regulations do not allow for this type of innovation.

“We foresee that in the next decade the focus will be on providing a more diverse range of housing types … that is going to require a different mindset.”

Property Council of Australia WA deputy executive director Alix Rhodes said Perth urgently needed more medium-density developments and options. 

“Perth simply cannot continue to expand at the current rate of sprawl,” Ms Rhodes told Business News.

“We have neither the capacity or the funding mechanism to provide adequate infrastructure for those living on the outer suburbs.

“There is huge demand for smaller, medium-density housing in established suburbs.”

Ms Rhodes said medium-density housing catered to a range of buyer types from first home buyers looking to live close to work and public transport, to retirees looking to downsize but stay within their existing suburbs. 

“The economic and social benefits of increasing density are clear to see,” she said.

“These developments are essential if we are to create housing choice and diversity and will be a key factor in boosting housing affordability.”