What’s driving the new housing boom? | John McGrath

In his weekly column in Switzer real estate guru John McGrath gives an interesting take on the advantages and challenges of DIY renovation.

He makes some interesting points I haven’t heard discussed in this context before, so please read on…

There’s a bit of a boom happening in the housing construction sector, with scores of new apartment projects underway and plenty of young buyers, investors and downsizers keen to snap them up.JohnMcgrath

We’re also seeing a lot of young families choosing to build their own homes thanks to government grants incentivising building and a slow release of new housing lots in undersupplied cities like Sydney.

Housing construction is a primary driver of a recovering economy, providing jobs and a significant boost to the manufacturing and construction industries.

Low interest rates and a chronic undersupply in many cities are among the drivers of today’s record construction levels, with signs that renovations activity is also on the rise after many years in the doldrums.

According to the Housing Industry Association, national dwelling commencements reached a low of 135,344 per annum by the March 2012 quarter. Since then, a steady recovery has ensued and we are currently looking at 178,700  new starts for the 2014 financial year.

NSW is leading the way with 49,000 dwelling starts expected for FY14 – up 21.9 per cent on last year and the highest level of activity in a decade, with another 50,000-plus expected in FY15.

In Brisbane, market research firm Urbis predicts 5,500 new apartments will be ready for sale in the second half of 2014 after record off-the plan sales in 2013.

On the Gold Coast, Chinese buyers are a big driver of apartment sales and Asian developers are keenly competing for new development sites.

So what’s driving this new housing boom?

There’s a number of things. Affordability pressures in expensive markets like Sydney are encouraging young buyers to choose apartments over houses.

Investor demand is also very high both from locals seeking low maintenance assets with big depreciation benefits; and foreign buyers who can only buy new properties for investment under Foreign Investment Review Board restrictions.

[sam id=37 codes=’true’]And then there’s the simple rising trend in apartment living, with apartments no longer seen as the poor cousin of houses. Modern apartment design is excellent and you can have as much living space as you would in a house (if that is what you’re after).

Apartments are lower maintenance and offer better security; plus there’s more of them in the most desirable locations, such as city and beachside areas.

Also driving this trend is an increasing number of no-kid households.

These buyers are young singles and couples; as well as senior couples/downsizers whose kids have left home.

These buyers want lifestyle, convenience and security and apartments provide exactly that.

As an asset type, apartments are also achieving good capital growth – still not as much as houses; but the gap is closing.

In 2013, RP Data figures show Sydney houses grew by 15.2 per cent versus 11.6 per cent for apartments.

Not bad.

In terms of the future, respected property analysts BIS Shrapnel have recently announced their predictions for a 15 per cent gain in Sydney apartment prices over the next two years.

Things that are helping the construction boom along include more land releases and government initiatives such as making first home owners grants applicable only to people buying new or off-the-plan homes, which has driven sales.

In NSW, the purchase threshold for the grant was recently increased in the State Budget from $650,000 to $750,000. In QLD, the threshold is also $750,000.

All in all it’s a pretty rosy picture for the construction sector and this bodes well for property prices across the board in the short to medium term future.


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