November 1, 2018
It almost goes without saying that the current housing and construction markets are making Australians nervous but opportunity should be acknowledged in this current storm. Whilst the royal commission has placed a stranglehold on credit, for those of you who can buy, you really should be making the most of this 'fake' downturn.
Why do I say it is a 'fake' downturn? Victoria and Australia overall are still in the middle of a population boom. We still do not have enough housing to keep up with the requirements of this new incoming population based on the most recent HIA and Master Builder updates. Whilst construction costs will continue to soar, especially with incoming licensing changes to trades, this will only result in capital growth for our housing market in the long run, especially when our banks return to doing business as normal post the royal commission.
In my opinion, what we are seeing at the moment with housing prices is a temporary downturn caused by a banking slap on the wrist. Once the sting from this slap subsides, the banks will begin to lend as normal once again and we will then see more buyers with approved finance ready to purchase. This will then push the prices up once again. The banks key stakeholders are their shareholders. Therefore, once the profits are impacted from lower lending and the interest income that arises thereof, there will be a shift towards less stringent lending requirements.
As for construction and the cost for building new homes and apartments, what we are seeing of late will only continue.
Current state government initiatives and increases in the cost of steel and timber will continue to push up the cost to construct.
Over the past couple of years, the increase in the cost of timber and steel is unprecedented and if you are considering building at the moment you should factor in these increases to the price you are expecting to pay for your build. Well-versed builders will have already factored in these increased costs in the quotes you receive. At Milara Building and Development we ensure we stay across these fluctuations in market pricing by constantly keeping the lines of communication open between ourselves and our suppliers. We also subscribe to updated Rawlinson Guide (A publication that offers construction cost guides and is updated on quarterly basis) numbers that ensures our rates are updated on a quarterly basis. Our aim is to provide the best quality finish at competitive prices. Simply choosing a builder on price opens you and your family up to the risk of (1) the builder running out of money as he has undercooked his trades leaving you with an unfinished build and (2) Significant warranty claims due to poor workmanship.
The new government policy initiative to require all trades to be licensed and to register we believe is a positive move but this will have a significant impact on the market in the upcoming few years. Currently builders, apart from plumbers and electricians so long as appropriately registered, can oversee all components of building without the use of licensed trades so long as the workmanship is adequate and meets standard.
The state government has marked that from July 2020 mandatory licensing of trades will be required for carpenters, plasterers, waterproofers and concreters with others to follow that will cause a large shortage of labor. Those that are registered and able to work will consequently become busier. This decreasing supply of available trades which result in higher trade rates, increased time lags for trades and a higher construction cost. As an industry we are still in the dark and are unaware as to what level of training and or experience will be required for these trades to become registered and licensed and there is still much uncertainty around these policies however change is coming to the industry and as a result Victorians need to be aware that an increase in cost to construct will be likely. This will have flow on effects for the cost of our homes as supply will likely shrink further adding further upward pressure on homes.
Milara Building and Development is currently informing our network of trades of these changes and ensuring all trades impacted by these changes have or will have the necessary licensing in place when these changes take effect. We have a long-established relationship with our trades and only maintain relationships with the best. We also ensure that all updates provided to us are shared with our trades.
In summary, If you are looking at buying at the moment and can obtain finance conditions are definitely favored towards the buyer. Unless you have to sell at the moment I would be holding for now and if you have been putting off a build I would definitely get your projects underway as costs to construct are almost sure to increase in both the short and medium term. Finally the warranty period on your house is for 10 years so choose your builder based on quality, not price.