The homebuilding sector has a strong outlook, but there are still challenges to overcome.
The economic conditions dominating the Western Australian economy are stacking up in favour of residential builders.
The industry is overcoming its most tumultuous period to date, as homebuilders work through a significant volume of jobs in an environment where input costs have risen dramatically, and labour is scarce.
Strong demand, brought about by government stimulus during COVID, coupled with sharp cost escalations in a sector that adopts fixed-price contracts has led to a profitless boom in recent years.
Cost pressures have driven some builders under, leaving incomplete jobs on the ground and a rise in the number of indemnity insurance claims.
However, a slowdown in the rate of build cost increases has led to more stability in construction contracts, and builders are able to generate more revenue.
Independent industry commentator Tristan Kirkham, who founded New Home Building Brokers, has noticed a sense of stabilty return to the sector.
“[Builders] are on top of their costs more than they have been in the last three years, so we are trending back to normal erosions on builder’s margins,” Mr Kirkham said.
“Builders are far more confident.”
The state’s population is growing faster than the government anticipated, with the latest Australian Bureau of Statistics data showing a record 2.8 per cent increase in WA’s population, an additional 78,342 people in the 12 months to June this year.
This compared with Treasury estimates in the recent state budget of 56,000 people for 2023.
The state is in the middle of a severe housing shortage, with CoreLogic data showing that rental vacancies at an all-time low of 0.5 per cent.
In addition, the volume of new homes being built is not enough to meet demand.
Housing Industry Association (HIA) estimates show between 14,000 and 15,000 homes will be completed in WA this year, but experts say the state needs more than 20,000.
“We certainly knew population growth was picking up but did not realise that it was increasing so quickly,” Mr Cresp said.
“This is putting a lot of pressure on a housing market that is struggling to produce enough new housing supply and has a very low vacancy rate and a number of established houses on the market.”
ABS building approvals have bounced back from record lows earlier this year to 2018 levels, with figures showing 1,188 dwellings were approved in WA in August.
This compared with just 709 in January this year, which was the lowest recorded month since approvals records began in 1983.
Approvals have steadily increased since June and industry hopes this trajectory will continue.
HIA WA executive director Michael McGowan said builders had experienced more stability in recent months, but the industry was still hampered by a shortage of trades.
“The industry itself has found a bit of stability over the last three months,” he said.
“What we’re suffering from continues to be labour and workforce capacity.”
A shortage of trades has led to reports of new homes taking up to three years to complete, which has tarnished the reputation of the industry and angered some customers.
Delays have affected every stage of home builds rolled out via the government stimulus because each stage of every build has occurred concurrently.
Government-imposed deadlines to get slabs poured by a certain date meant concreters were spread thin in the early phases of builds, followed by bricklayers and subsequent trades.
This led to a situation described as “the snake that ate the wombat”, where builds took a long time because of the lack of trades available.
Mr McGowan said the build pipeline was easing as the stimulus-driven new homes neared completion, but there was still some digestion to occur.
“I still feel like there are nine to twelve months left in the pipeline,” he said.
“The number of legacy jobs is definitely reducing, but there’s still a huge demand for tilers, renderers, roof plumbers and certainly in the cabinet-making space.
“It’s definitely at the finishing trades end.”
Mr McGowan added that HIA felt positive about the industry going forward, but slower build times would have an impact in the near term.
“We’re reasonably bullish on the outlook,” he said.
“It’s going to be slower and probably won’t meet the expectations the community needs, but we’re relatively confident that if we can have that planned pipeline, we can build a really strong industry over the course of the next couple of years that can sustain itself for the next 10 [years].”
Mr Kirkham said jobs starting now were progressing a lot faster than the past three years, which was boosting the confidence of homebuyers.
“Most importantly, new jobs going to site now are going so quick,” he said.
“You can put concrete in within weeks, you can get windows on site, you can get brickies at good rates.
“On the front end of the cycle, it’s all tracking back to a little bit more normality.”
Status of work
While the early stages of home builds are progressing rapidly, jobs are stalling in the roof cover and lock-up phases.
It is for this reason that BGC Australia is not in a hurry to resume selling new homes.
BGC Housing Group was the state’s most dominant home builder for several consecutive years before it pulled the pin on new sales earlier this year.
The decision brought a backlash from some customers, with a group threatening a class action against the building giant for delays and/or increased costs.
The group has dropped to 780 home starts in 2022-23, from 1,980 the previous financial year and 4,205 in 2021.
He told Business News that, financially, taking on new sales would benefit builders, but BGC’s business model allowed it to shift is focus.
“The best thing you could do for your cash flow, I think for any builder, is to take new sales because you get deposits,” Mr Cooper said.
“You’ll move through those early stages quite well, and any house sold now has a high margin compared to previous sales.
“If what you wanted to do was about cash, the best thing you could do would be take new sales.
“[For us] it’s really about the focus on the people we have, [to] complete their houses, because any new sales we introduce we think would just end up causing problems for our existing clients.”
He said the company was in the fortunate position that it did not have to rely on housing sales to stay afloat.
“We’re not just a builder; we’ve got our materials and products business,” Mr Cooper said.
“That’s where our focus has been, on ensuring we’ve got capacity and meeting the requirements for the market in that space and completing our current jobs.”
The new brick is larger than a standard brick and has raised joins on the sides so it can interlock pieces, and a flat surface on the top and bottom so it can be glued.
This eliminates the need for mortar, which is used on standard bricks.
Mr Cooper said using this brick in a build, based on products already used in Europe, provided a 25 per cent time saving over conventional methods.
“We wanted to make a system that’s faster, lower cost, more sustainable and has a lesser requirement on highly skilled bricklayers,” he said.
Midland Brick has conducted trials on the brick over the past two years and has moved to production phase now as it works with volume builders to incorporate it into new home builds.
The need for skilled labour has not been lost on BGC, with the builder working with schools on a program to train year 11 and 12 students in construction.
In addition, the company is working alongside training body Brick and Block Careers to attract more apprentices to the industry.
Construction Training Fund figures show that 10,134 apprentices and trainees were employed in the construction industry as of June 2023, a 2.2 per cent increase on the previous year.
This compared with 8,148 in 2021 and 6,350 the year before.
Construction Training Fund chief executive Tiffany Allen said the increase was linked to the state government’s fee free training incentives, and the significant volume of work in the pipeline.
“I think there was some sentiment last year that things might fall off a cliff, and that the removal of the federal stimulus would drop in apprenticeships, but it hasn’t,” she said.
The recent federal government target of 1.2 million homes across the country over the next five years has been questioned by industry, but most welcome its ambitious approach.
Mr Cooper said that, given these targets, which would mean WA would need to build at least 24,000 homes each year, apprentice numbers should be growing at a faster rate than they were.
“If the forecasts are to be believed, and we have a doubling of housing starts between now and FY26, the amount of labour we’re going to need can’t just be a trickle increase [in] apprentices,” he said.
“It needs to be a flood.”
Housing starts across the state dropped by 30 per cent in 2022-23 to 14,951, figures from HIA’s Colorbond Steel Housing Report show.
BGC’s exit from sales triggered a redistribution of builders taking on new jobs, with Dale Alcock’s ABN Group moving up to top spot with the most home starts, at 1,717 commencements this financial year.
Anthony Silvestro’s Blue Print Homes moved up to second spot with 1,330 starts, compared with 1,252 last financial year.
In 2022-23, Scott Park Group commenced 748 homes, compared with 932 a year ago.
“There is a lot more predictability around,” Mr Park said.
“Most builders are looking forward to enjoying some profitable times ahead, which will make up for some of the tough times during COVID.
“Construction costs are up, but they are predictable [and] are built into contracts.”
Mr Park said he expected an increase in his company’s build starts over the next 12 months, given strong sales activity.
JWH Group has started construction on 733 homes, compared with 838 the previous financial year.
“I think we’re out the other side of a profitless boom, but sadly there’ll still be hurt to come for some builders as they realise more completions and see their losses come to fruition,” he said.
JWH shed some of its brands following the onset of COVID, but Mr Walter said this was necessary to ensure the company could deliver what it promised to customers.
“We’ve taken a hard stance on what we will and won’t accept, which has seen our range of designs reduced in some of the areas we’d historically like to build them,” he said.
Mr Walter added that the building industry had demonstrated its resilience over the past few years, as companies were adapting to survive.
As for BGC’s re-entry into the homebuilding market, Mr Cooper said the group would recommence builds eventually, but wanted to move away from the fixed-price model.
“At some stage we will [start building again]; we just want to make sure we complete everything we’ve got first before we bite anything more off,” he said.
“I’m certainly not a big fan of fixed-price contracts.
“We are still in inflationary times and fixed-price contracts, while they might work for banks, don’t particularly work for builders.”