We're building towards a home construction boom

[ffc1883_1996]

Maybe “cheap” labour is a misnomer. What we’re really talking about is “cheaper” labour.

At the moment, demand is outstripping the supply of skills – allowing trades people to name their price.

 

[Dis]

Big difference beween a boom in 2010 and a boom in 2015.

An investor led boom in 2015 implies that the trigger for resi property looking sufficiently attractive isnt going to happen until 2013ish. Yet lots of people are going on about now being a buyers' market.

I see now being similar to the early 90's. It was painful to hold through the 90's but people who held were rewarded in the 1998+ boom years. In retrospect it would have been better to buy towards the end of the 90's. Similarly it would now be better to wait until after 2010 (2012?) to buy.

On the subject of baby boomers, I wrote this a year ago in the follwing thread:
http://www.somersoft.com/forums/showthread.php?t=35371&highlight=short+term+boom+long+gloom

4) The last year of the baby boom generation was in 1961. Not just Australia but in much of the western world. The highest spending age is 47yo on average. That makes 2008 the last big spending year in much of the western world before the level of consumption starts decreasing. Regardless of whether spending is debt or savings funded, at some age people just stop needing new stuff. Governments may try and stimulate demand by lowering interest rates, but with official rates so low already, this may be quite limited. ---> Recession.

I think that is quite significant when coupled with devaluation of super/shares/housing, increased food and oil prices, increasing energy prices due to glbal warming issues.

In essence I agree that there will be a construction led boom in the middle of the next decade. However, I'm very happy not to be the first in the queue waiting for it to happen.

 

[HandyAndy888]

Yet lots of people are going on about now being a buyers' market.

I am...

 

[Aaron Sice]

fug the boom or bust. give me a good yield and throw in some CG and i'm happy for the moment.

 

[sash]

Personally I think there will be a building boom with a caveat, that is that the property prices of exsiting properties particularly in the outer suburbs have to go up a lot more. That is because the difference between buying a second property vs a buying something new is almost double.

For instance you can still pick up a two bedroom unit in Auburn in sydney for 175K...but the same product new is going to cost minimum of 330k plus the exhorbitant strata rates. So for more development (assuming council there allows more development) older unit values need to raise to say 270k for the premium for new vs old is acceptable. Already the rents for the older stuff is minimum of 240pw...if rents get to 320pw...investors will pour in driving prices up and a new building cycle commences.

I personally don't see the boom till at least 2010-2011. My 2 cents worth...pick the older units up refurbish and wait for the swing upwards from 2009!

 

[want2bewealthy]

How can it be a fact if it hasn't occured yet.

Because there was a big story on it in this months edition of API,
Migration is exceeding construction, thats how.

 

[BayView]

I think cheap labour is bad for Australia full stop. I hope it never comes to that...

Agree there.

More workers than jobs means lower wages.

In the US, the problem has been the illegal labour, which was very cheap. This has had an effect on the minimum wage - it's around $7 per hour.

They are starting to address it as a crime to employ these illegals, but for what appears to be decades they have been turning a blind eye to illegal workers.

This is great for employers, but the long-term effect is no wage growth.

What happens with the illegals over there is you'll get a dozen or more of them living in one apartment, sharing the costs and being able to survive.

As long as Aus keeps vigilant and stops illegal employment, and the Unions can maintain their strength, the workers already here should be fairly protected.

 

[kph]

Well something has to give...
If costs of the inputs that go into creating housing keep going up, and are already unaffordable now, then logic says something has to give.

Either that or we will fulfill the 5000 year cycle and start to live in caves again.

Its not about cheap labour but about cheaper labour.
Under a 457 migration sponsorship the min wage is now set at $43k odd. Is that too low for a worker ?
Just because tradesmen are having their day in the sun currently, does that mean that all tradies have to earn $100k ++ ?
Its not sustainable.

Something has to give..

 

[HiEquity]

Its not sustainable.

Something has to give..

The price of land maybe? Through the release of more land / higher density zonings? Same construction cost for the house + lower land value = more affordable houses.

There has to be a big increase in supply by Govts to do it though. Not much hope on that front...

At least tradies build things and create real value - more so than lawyers / merchant bankers etc etc... I don't mind them getting paid well to sweat it out in the sun - although sometimes I must admit it has been getting a bit excessive lately!

 

[CHISEL]

Governments don't help to stop booms or affordability

The price of land maybe? Through the release of more land / higher density zonings? Same construction cost for the house + lower land value = more affordable houses.

There has to be a big increase in supply by Govts to do it though. Not much hope on that front...

At least tradies build things and create real value - more so than lawyers / merchant bankers etc etc... I don't mind them getting paid well to sweat it out in the sun - although sometimes I must admit it has been getting a bit excessive lately!

I remember reading a book by Peter Waxman which I cant find at the moment
I wont quote it but it points out that if a new green field site is released 50% of the cost has gone to some Government department( hell there a lot of them and too many)

eg $300,000.00 for a 600m2 block $150,000.00 has found its way into some goverment depts pocket.

CHISEL

 

[boomtown]

Both land and building costs are cheaper with higher density.

Whats going to give is the McMansions. Ordinary people will be forced out of their palaces and into 1 and 2 bedroom flats.

As ably demonstrated on by the developers on this site - the 805m2 block is history.

 

[Peter Parker]

Both land and building costs are cheaper with higher density.

Are they?

A new house on its own block in the burbs can be cheaper than the typical townhouse or high-rise unit development closer in.

In the same location, it's often cheaper to buy an established house on a large block than a new townhouse on a quarter the land.

Ignoring the land component, or new vs old, construction costs of cheap units still seem to be not that much less than the cheapest project homes (with double the number of bedrooms, bathrooms and floor space).

Britain built large tower blocks to ease its postwar housing shortage and demolish 'slums'. However when unemployment became entrenched these concentrated social problems.

As it turned out the per-unit cost of high-rise tower blocks is no cheaper than lower density housing that offers its residents a higher standard of living (refer Gordon Stephenson 'On a Human Scale'). But because it looked high-density bureaucrats thought it would be cheaper per-dwelling unit.

In Melbourne we've seen proposals like the Mitcham Towers development fail. The cost of buying a unit would have been about the same as a normal house on plenty of land. Not suprisingly this was not attractive to the market and the project didn't go ahead.

High-rises do seem to work in inner or coastal suburbs, but elsewhere they don't seem to be very lifestyle or cost attractive relative to either (i) established houses or (ii) the sort of medium density villas built from about 1960 - 1990. Similarly townhouses seem to work in high-demand 'quality' suburbs but I can't see their appeal elsewhere (where they'd be too expensive for the target market who find single houses more affordable).

Peter

 

[boomtown]

Peter

I think I left out a major part of my analysis.

I anticipate that traffic will get much worse in all Australian cities and that (peak oil or not) petrol prices will become increasingly (severely) unaffordable.

In my view the cost of commuting from outer ring will become prohibitive and we will have high density sprouting around transit points for light rail and busways. We are already seeing the start of this.

It is these indirect costs (of time and fuel) that will drive (no pun intended) workers inward. Outer surburbs wtihout transit links will see radical stratification between wealthy professionals who have the skill set to telecommute and the poorest of the poor who have to spend long hours catching buses.

To me - petrol prices mean that urban sprawl is less of an option than it has been in the past.

 

[kph]

The price of land maybe? Through the release of more land / higher density zonings? Same construction cost for the house + lower land value = more affordable houses.

There has to be a big increase in supply by Govts to do it though. Not much hope on that front...

At least tradies build things and create real value - more so than lawyers / merchant bankers etc etc... I don't mind them getting paid well to sweat it out in the sun - although sometimes I must admit it has been getting a bit excessive lately!

Unlikely Hi Eq.
The price of raw land may be offered for less, but all your input costs are just going up.
If the Govt. was prepared to to stop taxing every input then it may be possible to get end cost down otherwise I can't see it.

Higher density only skews this picture anyway.
eg... the market val of a duplex or triplex block closer in, ( the subdivided portion) usually equates to an equivalent full size block further out, with the added cost of subdivision and fencing issues, etc, only adding to this cost. ie.. they are currently not viable as an option as the vendors and agents have priced in the full potential value of the property ( tomorrows price)

Something needs to give... still.

 

[JoannaK]

How do they measure building anyway? Approvals, starts, completions, what?

The ABS measures by both approvals and starts...but for some obscure reason more emphasis is placed on approvals, which seems ludicrous to me....but anyway.

as a developer, the ABS gets sent details of my DA approval and then the ABS starts sending me out these annoying surveys about my developments, and by law I have to complete them and send them back.

as the developer, I also have to nominate who the builder is....so then the builder gets sent similar annoying surveys each quarter to fill out and send back.

and that's how they measure it...

 

[ffc1883_1996]

In my view the cost of commuting from outer ring will become prohibitive and we will have high density sprouting around transit points for light rail and busways. We are already seeing the start of this.

It is these indirect costs (of time and fuel) that will drive (no pun intended) workers inward.

Perhaps those same factors may drive jobs outward?

 

[redwing]

I think cheap labour is bad for Australia full stop. I hope it never comes to that...

I thought we were already there?

Companies flying tradespeople in and paying them required wages, but then subtracting accommodation, food, transport etc

Companies getting students (some of whom are only here to try and obtain residency anyway and supposed to work 20 hrs per week max, others who are here as full-time students but trying to subsidize costs) to fill out ABN paperwork and then set them up as subcontractors...Insurance, Licencing etc you say; what’s that?

I heard a story recently of a company that had a number of divisions/assorted companies, they started another company as an 'employment' division (no assets) and put all current and new employees under that banner...fast fwd 12 months

They then sold one of their divisions to a competitor for a profit and wound up the 'employment' division by calling in the administrators, they were hoping to keep the other divisions/groups going and just *sink* the employment division/group, re-hiring individuals under the other divisions/groups again

Many employees were left without the last fortnights wages (appears the employment company traded even after administrators were called in), total superannuation owed is about $1.6M + (sorry; got no money say the directors), staff received Group Certificates and lo and behold many had apparently only earned $7,500 (hmmm why that figure?) despite having fortnightly payslips to the contrary, a number of staff owed Annual Leave (10 weeks was the most I’ve heard of); they were also into the ABN scheme detailed above

Staff have complained to the administrators, who have shut down all divisions of the company at this stage and also the ATO, ASIC and anyone else who will listen to their plight

 

[Shadow]

First Home Building Boom Continues

More on the forthcoming construction boom...

http://www.aireview.com.au/index.php?act=view&catid=8&id=10941

First Home Building Boom Continues

December 10 2009 - Australasian Investment Review – (AIR)

The real story from the housing finance stats yesterday was that the new home building boom is alive and growing and will continue going well into 2010.

But the reality is that over $1 billion a month more is being lent for housing this year than a year ago, and much of that is going into building new homes.

And that was the reality found in the figures where new home building boom is soaring.

"The seasonally adjusted series rose 9.2% to 8,016, the highest level since August 1994," the ABS said.

That's actually up on the 8.0% growth rate in September from August.

Looking at the figures another way, from October 2008 to October of this year, the number of new home building contracts financed more than doubled, to 8,016 from 3,951.

...

Next year will be when new home building replaces demand from the schools program.

 

[Aaron Sice]

sorry i missed this thread earlier.

Boomie - construction costs are the same - if not elevated - with urban infill. tighter clearances, 2 storey over single, more complex design make for MORE EXPENSIVE homes.

land may be cheaper to get into a suburb - but it's still the same $$$ per sqm - just your sqm is less.

i fail to see how urban infill architecture is cheaper - and i've been doing it a while now.

 

[MichaelW]

i fail to see how urban infill architecture is cheaper - and i've been doing it a while now.

It certainly isn't cheaper...

Just got my tender responses back and they're all above budget but not by an insurmountable amount. I'm going to work with a couple of shortlisted builders now and squeeze every penny I can out of the quotes.

The big difference is that the urban infill stuff typically requires excavated basements which is heavy engineering and cost. A typical urban fringe build is a lot cheaper with project builders putting stuff straight on top of the dirt.

My build cost for 3 units is quoted back at $1.5M at present. Add $250K each for the land cost and each unit is currently costing $750K. Add a 20% developer's margin and you're at $900K price to the market; for a unit!

I'll get those quotes back to budget but it will take some work. When its all locked in and ready to commence I'll start a development blog thread and update you all on the tender process through vendor selection and contract.

Cheers,
Michael