Builders going into administration and construction costs rising!
By Casey Taylor | Buyers Agent
Australia is seeing massive amounts of population growth currently.
What does population growth mean?
Population growth means increased demand, more people need somewhere to live.
Putting pressure on both rents and house prices.
The federal government has announced a plan to build 1.2 million new homes starting from 1 July 2024.
Not only will this not solve the problem now, but there are a number of reasons why this housing supply won’t keep up with the population growth (demand) in the coming years.
Right now, it has never been more expensive to build a home.
In recent years housing construction has surged growing at the fastest rates since the 1970s.
Source: ABS June 2023
Over the 12 months to June 2023 inputs into the home construction industry across Australia’s capital cities increased 7.4%.
Down considerably from the previous 12 months of 17.3%.
This is simply the construction cost without taking into account labour shortages and project delays.
These unprecedented levels have created pressure on builders operating at fixed costs.
This is where you hear crazy stories about the builder increasing the build cost on them by tens of thousands of dollars.
More and more builders are entering administration.
New builds as an investment property is never a wise idea but right now with builders entering administration this adds a massive amount of risk!
What would you do if your builder entered administration?
In August 2023 there were 308 construction firms entered into administration or had a controller appointed.
The Australian Securities and Investments Commission (ASIC) confirmed this is the highest monthly recording in over a decade.
Last financial year, a total of 2,213 construction firms entered insolvency up 72% from the previous year. This financial year to date it’s tracking even higher.
Source: Australian Securities and Investments Commission (ASIC)
There is more hesitation in the new build market place as individuals begin to understand the high risks involved with this.
This means higher demand for established houses.
There is now a higher share of buyers favouring existing properties over new, this implies a slow down in demand of off the plan builds which will affect the quantity of homes being created. (supply)
With the federal government’s goal of building 1.2 million homes over the next 5 years, of 240,000 dwellings per year there are big challenges ahead. These numbers will be unprecedented.
The average number of dwellings number of dwellings over the past 10 years was 191,000. Last year this fell below the average with 173,000 new homes completed.
Dwelling approvals are declining with a strong indication this number will in fact reduce not increase.
Australia has never exceeded building new housing at these levels. The highest number of dwellings in a 12 month period was 224,000 in 2017 March ending.
This year new dwellings reached it’s lowest levels in a decade at 22.9% down from the same time last year.
In summation, with population growth booming and this slow down in new homes being built things are only going to get worse.
- Demand for established properties will remain strong
- New builds will struggle to keep up with demand
- It’s extremely risky to pursue a new build with builders going into administration at record levels
- Record population growth will continue to put pressure on house prices and rents
As an investor wanting to execute on your goals and increase your wealth and create financial freedom it’s never been more risky to purchase brand new.
If you have any questions or want to chat about this further reach out at info@tayloredpropertywealth.com.au.
Further Reading:
➡️Australian Property Market Predictions 2024
