Tomorrow I will be 47 – statistically past my half-life. I have been in the property game since the late 1980s. I am experiencing my fifth property cycle. I have heard some trash in my time, but the recent bleepings about new housing starts just about take the ‘birthday’ cake.
It goes something like this – we need more housing starts; the market is undersupplied; drop interest rates to help get things moving again. And whilst you are at it, remove taxes and charges off new development. Give me more and more. NOW!
Hmmm, I am starting to wonder who is really to blame for our low level of housing starts.
True, the GST, infrastructure charges and stamp duty have an impact on diminishing new housing demand. True, too, that the valuation industry is having further negative impact, but the overall new property market isn’t undersupplied and whilst population growth is increasing, its stimulatory impact is far less than it once was, as household size is on the increase.
Ditto when it comes to interest rates – they have dropped, and might fall further, but they don’t seem to be working like they used to. And economic modelling suggests that further drops will have very limited impact on lifting new housing starts.
Lets look at some stats
Before I start the blame game, let’s have a few stats. It wouldn’t be kosher if we didn’t throw in a few figures – besides, the big 47 at the top of this post would look pretty sad all by its lonesome.
- There were 145,000 new dwelling starts across the country last year, down from 164,000 or 12% on 2011. Nine years ago, 180,000 new dwellings were built in a single year across the country.
- New detached house starts were down 10,000 to 89,000 during 2011/12; new attached starts were also down about 10,000 to 55,000 for the year to June 2012.
- The distribution of new starts during 2012 was as follows – 34% Vic; 23% NSW; 18% Qld; 12% WA and 6% SA. Despite its high market share, Victoria experienced the greatest fall in new starts over the last twelve months.
According to recent research by Goldman Sachs – and they assume a further 0.25% fall in the cash rate later this year – new housing starts across Australia will largely remain unchanged during financial 2013; rising to about 170,000 during 2014 and again in 2015.
Increasingly, housing completions will be the highest in NSW, Qld and WA, with falls predicted across Victoria over the next three years. New starts in NSW are forecast to rise from 34,000 now to 43,000 by 2015. Qld starts will rise from 27,000 to 38,000 over the same time period, with WA rising from 18,000 to 25,000.
Why NSW, Qld and WA?
Simple – these three states are likely to have the most growth in new full-time jobs. The two largest drivers of new housing completions are job creation and the ‘impulse’ of interest rates. It isn’t the level of actual interest rates that is important, but the stimulatory impact, or otherwise, of a rate change.
And on that note, if the cash rate dropped more than 0.25% – say by 0.75% over the next three to six months – Goldman Sachs’ modelling shows very little change in their original forecast.
And I agree.
Just released ….
New homes sales fell by about 6% in July, wiping out all the gains recorded over the previous five months. Sales stand at the second lowest level in 11 years.
In short, the housing construction market is back in the doldrums. Newly-erected homes aren’t selling, reducing the requirement for builders to start work on new projects. The RBA Gov. has expressed surprise about the lack of home construction.
The housing industry is “lost” for an explanation as to why this is happening.
Property promotion is doing more damage than good
You see for mine, new property isn’t in strong demand because what is supplied is increasingly missing the mark; so, too, is how new property is promoted and its current method of disposal – a price reduction – just doesn’t work. In fact, it does more damage than good.
In short, too much of the new stock on the market is poorly proportioned, designed, finished or sufficiently offset to entice buyers.
Likewise the promotion of new product is mostly homogenous, stale and reflects more the age, sex and circumstances of the development company directors than who they are trying to sell their product to.
Customers don’t want to hear about a developer’s history. They do, however, want to know about their previous development’s performance. Strange how few developers actually supply such details.
They also don’t really want all the lists that sales people seem to provide – pages of research material, very little of it relevant; brightly-coloured brochures, dozens of floor plans/home designs. They do want, however, trusted third-party endorsement.
Combined years of experience – give me a break. Mostly repetition if you ask me, and yes the irony isn’t lost on me, given my intro to yesterday’s post. See, we all do it!
Also, they aren’t interested in what makes your project different. They only want to know what’s in it for them.
But more on these issues in future missives.
Let me close with a few remarks about discounting price.
There is a substantial body of very well-credentialed research to suggest that buyers prefer “extra for free” rather than the more generous “reduction in the asking price”.
It essentially boils down to a bonus versus a bribe.
Keep in mind that a building bonus; a first home buyer’s grant or even a reduction/removal of stamp duties on new product is seen by the market as a “discount”.
Price tells the market much more about a product than merely what it costs. A price cut – however it is packaged – is often seen as a mark of mild desperation on the part of the seller and it is not unreasonable to infer that the product is either inferior and/or that further price reductions are just around the corner.
Charging the full price but adding a tangible extra – i.e. a furniture package; guaranteed rental return; storage fit out; or a fixture and finishes upgrade – does not convey the same level of desperation. In fact, more often than not it enhances the product’s brand.
For mine, the new housing industry – in the main – is quite lost. It still operates like a land-line phone. It isn’t a smart-phone or a tablet. It is analogue not digital. It is at odds with its target market(s) and until this disconnect is improved, new housing starts will remain low.
Hard words indeed from someone who is male, pale and increasingly stale, too.
And just to show my age, I have been listening to Rodriquez – Sugar man/Crucify your mind/I wonder/Sandrevan lullaby fame (even saw him in concert at the Tivoli last year) – of late.
So you think you have something to offer
Something shiny and new
But how much of you is repetition
And how much of that did you do poorly too?
Ohhh, 47 tomorrow. Where did the time go?
Michael Matusik is the director of independent property advisory Matusik Property Insights. Matusik has helped over 550 new residential developments come to fruition and writes the weekly Matusik Missive. The Matusik Missive is free, however, reprinting, republication or distribution of any portion of this material, or inclusion on any website, is strictly prohibited without the written permission of Matusik Property Insights and may incur a charge.
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