Global quakes still delivering aftershocks to Australian housing

Even as international crises continue to wreak havoc on Australia’s housing sector, building approvals tumble, and construction companies fold, there are enough signs of hope that one major builder has scored the health of the industry at 6.5 out of 10.

Economist Jonathan Pain speaks at lectern, with API Magazine poster in background.
Economist Jonathan Pain outlined a rather bleak picture of the current global political context. (Image source: UDIA WA)

Reverberations from global tensions and conflicts continue to resonate in Australia’s housing sector and building industry.

Building approvals continue to plunge, hamstrung by labour shortages stemming from an international pandemic, soaring building costs fuelled by supply issues brought on by a war in Europe and tensions with, and lockdowns in, China.

The total number of dwellings approved fell 6.0 per cent in October, following an 8.1 per cent decrease in September, according to data released Wednesday (30 November) by the Australian Bureau of Statistics (ABS).

The challenges of prioritising in-fill development over urban expansion was evident in the sharp contraction in apartment and townhouse approvals, down a massive 11.3 per cent in just a month. Approvals for private sector houses fell 2.2 per cent.

There was a hint that supply bottlenecks may be easing, with Australia’s sky-high inflation rate easing last month.

In a big day of data for the ABS, it also revealed the monthly consumer price index (CPI) rose 6.9 per cent over the year to October, down a little from the 7.3 per cent headline inflation rate recorded in September.

The easing of the inflation rate was tarnished by the fact the most significant contributor to the annual rise was new dwellings (+20.4 per cent).

Michelle Marquardt, ABS Head of Prices Statistics, said, “High levels of building construction activity and ongoing shortages of labour and materials contributed to the rise in new dwellings.”

Global quakes, local tremors

The building industry across the country is contending with global issues outside its control, with many companies unable to withstand the pressures on material costs, labour shortages and uncertain supply of the basic ingredients of construction.

In Perth, FIRM Construction has fallen into voluntary administration, causing havoc to the construction of four new schools, the already delayed Metronet Bayswater station, and around $80 million worth of high-rise apartments across Cannington, Applecross, Nedlands and Mount Pleasant.

Sydney residential builder Grover Construction has just joined a long list of failed construction companies, while in October, the Queensland arm of major construction company, Lanskey Construction owned by Melbourne Cup winner Paul Lanskey, is in liquidation owing more than $11 million to creditors.

The 47,000-home housing association, Platform Housing, on Tuesday blamed international events for a 33 per cent drop year-on-year in its delivery of new homes.

The association said in a statement that it had decreased its medium-term house building ambitions due to the economic climate. 

“Our homebuilding program has been affected by an increase in global demand for materials, the impact of Brexit and the war in Ukraine.

“These have resulted in increases in materials costs and extended supply times.”

World of Pain

The prospect of geopolitical tensions easing any time soon appears remote, with Russia pressing on with a winter assault on the capital Kyiv and the rest of Ukraine even as the instigator suffers a string of military and strategic defeats.

China’s relations with Australia are seemingly thawing slowly but no material changes in the trade restrictions imposed by Australia’s biggest trading partner appear to be around the corner. China’s President Xi Jinping is also sabre rattling around Taiwan and appears intent on pursuing the zero-Covid policy that has impacted world trade and supply routes, quashing any internal dissent in the process.

Speaking at a recent UDIA WA industry event in Perth, global economist Jonathan Pain outlined a rather bleak picture of the current global political context to the 450 strong crowd (at which API Magazine was the major sponsor).

He said tensions with China and Russia’s invasion of Ukraine will have ongoing and far-reaching consequences for global political environments and economic growth and warned that a global recession is looming and Australia will not be immune to the negative impacts.

While Ukraine was having the biggest impact now, he warned that the China-Taiwan issue posed the biggest threat to Australia.

“We’re on the precipice of something unbelievably frightening.

“The real endgame for Xi Jinping is to achieve the Chinese dream, the rejuvenation and reunification of the nation and that means taking Taiwan.”

Pain said Taiwan found itself in the crosshairs of a great geopolitical contest between the United States and China, with the Asian superpower backed by Russia, Iran and North Korea.

Domestically, when asked to make a prediction on the official cash rate Mr Pain cautiously suggested a peak in mid-2023 at 3.5 per cent is likely.

“While the housing markets are expected to crash on the East Coast, WA is somewhat sheltered from a significant fall in prices given its relative affordability and isolation, and interstate investors looking to WA for affordable options.”

Building industry score: 6.5 out of 10

Material costs were still trending upwards but at a slower pace than in the past six to 12 months, according to Charles Daoud, Co-Director and owner of national property and construction group, Trades in Purple.

“Supply lines have improved with much of the world opening up post-Covid lockdown periods.

“Where previously we weren’t able to obtain certainty around pricing/delivery, there is more confidence from our suppliers now.

The geopolitical environment remains a concern but equally it is global inflation affecting material supply and pricing, with timber, ceramics and specialised steel most affected by shortages and high costs.

Asked if he could rate the financial health of the building sector nationally on a scale of one to ten, Mr Daoud awarded it a score of 6.5.

“Market distortions caused by HomeBuilder and historically low interest rates/access to funding have largely stabilised.

“With migration opening up again, we hope to start seeing normalisation in access to labour – both trade and consultant resources.

“Inflation is still very much a concern, the market has shifted away from fixed price contracts, which is positive.

“It was unfortunate to see some great, long standing construction companies forced to close. “The unprecedented circumstances in recent times were black swan events and hopefully the lessons give the construction sector more resiliency as we move forward,” Mr Daoud said.

Squeezed on every front

Denita Wawn, CEO Master Builders Australia said there was little reprieve for a building industry being hit from all angles but hoped the worst would soon be over.

“International factors are the most significant influence on Australia’s construction sector – this is behind both the recent flurry of interest rate increases as well as many of the building material cost pressures,” Ms Wawn said.

“There are clear signs of improvement though, with shipping costs on the way down and delivery times speeding up.

“Much of the recent inflation has resulted from high commodity prices, but these are mostly either stabilising or falling.”

HIA Economist Tom Devitt said that despite the decline in approvals in recent months, they are yet to reflect the adverse impact of rate rises that commenced in May 2022.

“Building approvals have been sustained in recent months by the record number of home sales prior to the first increase in the cash rate that still haven’t been approved, much less commenced construction.

“Sales in and financing of new homes have fallen significantly in recent months, but this is yet to flow through to the number of homes gaining council approval.

“The full impact of the rate rise will not be observed in approvals data until 2023 when the pool of earlier sales is exhausted,” he said.

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