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By Willow Aliento
October 1, 2018
The Housing Industry Association recently revealed the builders who achieved the most residential dwelling starts for 2017, with Metricon Homes taking out the top spot for the third consecutive year.
The HIA-COLORBOND® steel Housing 100 Report details the top 100 builders nation-wide in terms of dwelling starts and highlights some key trends in the industry. The report is based on a survey of around 500 builders.
One of the key trends found was an increase in volumes overall.
First place getter Metricon reported a total of 4,764 starts in the 2017/18 financial year across Victoria, Queensland, NSW and South Australia, comprising 3,876 detached dwellings and 491 semi-detached dwellings. This was an increase of almost 400 homes when compared to its starts in the previous financial year.
Geordan Murray, Acting HIA Principal Economist, said this partially reflects the state of the detached housing market in Victoria, which has been “particularly strong”—a record number of detached homes has commenced. The state is also Metricon’s strongest market.
Overall, while the hurdle for being in the top 100 was higher than it has ever been at 118 starts, the top 100 saw their share of the new home building market overall fall from 34 per cent to 33 per cent. In terms of detached dwellings only, they accounted for 69 per cent of all homes built in 2017/18.
According to the HIA, in terms of residential building activity, 2017/18 will be recorded as one of the strongest years on record. It is expecting around 220,000 new homes will be commenced this year, making it the second strongest year on record and the strongest year for detached house builders in 18 years.
The HIA also said that many building businesses have been shifting the focus away from simply increasing the number of dwellings they build. They are now also focusing on improving the efficiency of their business in preparation for a slowdown in the market over the next few years.
Other detached dwelling builders in the top 10 included Simonds Group (number 5), Henley Properties (number 7), G J Gardner Homes (number 8), and Burbank Group (number 10).
Builders working across both low density and higher density projects included Dyldam Developments (number 2), Multiplex (number 3), ABN Group (number 4), and MJH Group (number 6).
High-rise apartment specialists Meriton Group rounded out the top 10 at number 10.
Some of the qualities shared by the top ranking builders is the fact their operations span across a wide range of markets, Murray said.
Murray said one of the reasons more of the big high-rise apartment builders didn’t appear in the top 10 was that many are holding off on new starts while they monitor how the market takes up product completed over the past year.
“We have seen a huge number underway [in recent years] that are now ready for occupancy,” he said.
Overall, at the moment, the market is coming off “one of the biggest booms” we have seen to date, where prices were growing rapidly.
“Now prices are slowing, that has impacted on [buyer] sentiment,” Murray said.
People may decide to hold off on a large purchase, such as a property, while they wait to see if prices drop further, he said.
There has also been an impact from the clampdown on investors on the part of the Australian Prudential Regulation Authority.
Murray explains that a couple of years ago, APRA imposed a 10 per cent limit on investor credit growth. This slowed activity immediately. Shortly after, the Reserve Bank of Australia dropped interest rates, which enticed investors back in.
In recent times, however, APRA has clamped down on interest-only loans, directing the banks to scrutinise the serviceability of loans and the overall quality of lending more carefully, Murray said. “The loan serviceability issue is also coming out of the Banking Royal Commission.”
These factors will lead to a slowdown in credit growth, which will take “some heat” out of the property market.
One upside of prices going down that is it creates better opportunities for first home buyers. If they have a secure income and some savings, Murray said, there will be more options within their price point.
“For those who are saving, the purchasing power of their savings is going up,” Murray said.
It is the reverse of what has been happening over the past five years, as rising prices reduced the first home buyer’s purchasing power.
At the same time, Murray said, in a “declining market,” it takes a long-term perspective to jump into the market.
As well as strong activity in the detached dwelling space, Murray said the HIA has been hearing there is “quite a lot of demand” for medium-density housing. It enables people to walk up to their own front door from the street or from their carpark, rather than to access their dwelling via a common area and lift.
However, one of the things that have also been coming through as feedback from builders is that medium-density and low-density is “a lot more difficult.”
For a start, it is far more capital intensive than detached dwellings, Murray said. They also take longer to build.
The price for a build in a house and land package scenario is the lot plus the home. The build time is around nine months, Murray said.
With a mid-rise or low-rise, construction takes a much longer, and it ties up capital for however long it takes to complete and sell the required number of dwellings.
It is also a very different business in terms of subcontractors, with trades on mid-rise and low-rise “tied up on your job for longer.”Moreover, as Murray claims, “It is almost a different workforce [to detached dwellings].”
In recent national discussions of housing affordability, the driver of the high prices in Sydney and Melbourne is not the cost of building. Murray said that that cost has not changed significantly over recent years. The Consumer Price Index data tracks the construction costs for owner-builders of detached dwellings.
Those costs have gone up “only fractionally” more than the overall CPI. The land price is the factor driving up prices, Murray said, as it has continued to escalate.
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