CSR

Industry insiders

We asked our insiders how the economy will shape the building industry in 2018 and about the impact on their business. We also chatted about emerging trends and technologies and the effect they will have.

Photo courtesy CSR

Author

Cass Proudfoot

This month we bring you some insights as to what our industry leaders are thinking, with views from different tiers in the market.

You might have expected a diverging range of views from across the industry as we move into the age of automation and innovation, compounded by the ageing demographic. But this not the case at all. It is pleasing that all our commentators were upbeat about the immediate and long-term future. But at the same time they recognise the importance of consumer sentiment in driving demand in the housing market, and how this contributes to a healthy economy.

All have confidence in the near future but foresee changes in terms of innovation and consumer expectations. Changing market desires and the use of digital tech and automation are seen as opportunities and clearly our industry is responding positively and quickly to this changing dynamic.

Recurrent themes in identifying the ingredients for ongoing success:

• low interest rates
• high immigration
• labour availability
• quality product
• foreign confidence in Australia (to invest in our housing product)
• low unemployment (provides confidence to take the big decisions)

Low interest rates and unemployment are driving current consumer confidence. All our respondents recognise the importance of housing to the nation’s economic and social health and candidly identify the risks.

Clearly there are challenges for the industry but there are enormous rewards to be had from digital transformation and automation. Many of the drivers for success depend on governments at all levels having sound policies on energy, infrastructure, taxation, planning controls and land supply. At HIA we have a comprehensive policy agenda and will continue to be a fierce advocate for the interests of our industry, and the national interest as a whole.

Risks to success:

• stagnating economy
• lack of a ready supply of land
• price and availability of energy
• failure to rein in and improve the planning system
• lack of government commitment in providing infrastructure
• sovereign risk of poor government policy driving investment and manufacturing offshore to more stable markets in other countries

The Insiders:

Rob Sindel

Rob Sindel: Chief Executive Officer CSR

Rob Sindel joined CSR in April 2008. He was formerly the managing director of Hanson’s slag cement business in the United Kingdom, a subsidiary of the global building materials company, Heidelberg Cement Group. Rob also held the position of commercial trading director for Hanson Aggregates in the United Kingdom. His 25-year career in the construction industry started with Pioneer in Australia.

Craig Muse

Craig Muse: Development Director Frasers Property Australia

Craig has been with Frasers Property (formerly Australand) for 17 years. Prior to this he worked as an engineer in local government. Craig also has a long involvement with the Housing Industry Association. He was elected to his current role as the HIA Victorian State President in 2017.

Adrian Hondros

Adrian Hondros: Chief Executive Officer Porter Davis

Adrian Hondros has over 30 years of experience in leadership roles in the Australian financial services sector. Since joining Porter Davis in 2016, Adrian has worked with his executive team to introduce a five-year strategic plan that will deliver sustainable growth, improve efficiencies and ultimately lead to greater consumer recognition of the Porter Davis brand.

Dean Humphrey

Dean Humphrey: Director Humphrey Homes

Dean Humphrey’s passion for architecture and building started when he built his first home at the age of 20 in Kalgoorlie. He established Humphrey Homes in 1999 and rebranded it in 2012 to be both a registered builder and architectural practice providing custom designs and award-winning service. Dean is chair of the HIA Technical Services Committee in WA and he sits on the HIA Regional Executive Committee.

How will the economy shape the building & construction industry in 2018?

Rob Sindel – CSR:

The three key drivers of the economy that shape the building and construction industry are: interest rates, employment and immigration.

Currently, interest rates are low, and that’s a good thing. Unemployment is low, that’s a very good thing. It gives people confidence to buy. Immigration is high at the moment, and for the building and construction industry that is a very positive thing. So while you’ve got those three things in the sweet spot, then that’s good for building and construction.

Overseas migration represents a significant proportion of Australia’s population growth

Craig Muse – Frasers Property:

It’s important to remember that the development and construction industry has a significant impact on the nation’s economy too. In many ways the nation’s economic health is tied to the performance of the housing market, and a strong housing market supports a healthy economy.

Overseas migration represents a significant proportion of Australia’s, and Victoria’s, population growth. This is contributing to strong demand for housing not only in Victoria but nationally. Interest rates have been at historical lows for some time. Additionally, employment levels have remained relatively steady in recent times. These factors all contribute to the strong underlying demand for new housing.

Housing affordability remains a concern as price growth continues to outstrip the growth in household incomes. Rental increases will follow. The build-to-rent market is an emerging category that can respond to this issue and is therefore an important new piece of the housing landscape to investigate. Without government support however, the returns are likely to be insufficient to make build-to-rent viable.

There are always exciting inroads being made in construction techniques and materials. The use of offsite manufacture is increasing and we’re looking at the optimum ways to unlock the potential sustainability, waste minimisation and timeframe benefits of this innovation.

Craig Muse on Emerging Trends

Migration is such a big deal for our industry. The reality is that our nation has been built on decades of strong migration and my view is that migration creates jobs, it creates economic growth, people start businesses, people do things to become as wealthy as they can in their new country.

And so it is just really important to us that we continue to see government policy that enables people to come to Australia and build their new lives.

Adrian Hondros on Migration

The economy

Adrian Hondros - Porter Davis:

It’s a relatively positive outlook. Interest rates have been stable for an unprecedented period of time. Employment is still relatively strong and the economy is generally strong. This suggests that the outlook for the building and construction industry is very good throughout 2018.

Here at Porter Davis we work in Victoria predominantly, and we see a stronger version of that good economy. Migration into Victoria is very strong, particularly the west and north-west of Melbourne.

People migrate to countries because they want a better lifestyle. We can offer that in Australia and homeownership is a fundamental part of that Australian way of life. We want to help make that dream real for people when they want to build a new home.

Homeownership is a fundamental part of that Australian way of life

Dean Humphrey - Humphrey Homes:

Looking at the HIA statistics, the forecast for 2018 is showing mixed results with half of the nation expected to improve with the other half continuing to fall. From a West Australian perspective, the sentiment is clear: things are on the up. Site starts are expected to increase and signs are pointing to a strong 2018.

Locally, consumer sentiment is improving. There has been talk about the market shifting for some time and it looks like this is the year. It certainly feels different already. We echo the HIA sentiment that there is renewed buoyancy this coming year from WA homebuyers.

Construction site
The build-to-rent market is an emerging category
Photo courtesy Frasers Property Australia
Humphrey Homes
When people expect quality there is always interest
Photo courtesy Humphrey Homes

Governments are responsible for ensuring the sufficient supply of development-ready land, but the rate of development in recent years has taken its toll on the availability of land. Governments must ensure there is sufficient supply to dampen price growth. It is a simple demand and supply effect. If supply is not properly addressed, prices will continue to increase.

The planning system is a major challenge in this regard. Excessive delays in approvals are occurring because the system is insufficiently equipped to deal with complex development applications. Unclogging the planning approval system should be a priority.

Craig Muse on land supply and planning

I think the increases in stamp duty for foreign buyers have had a huge impact on the apartment market, so governments have to be careful that they don’t kill the goose that lays the golden egg. Because that area is providing a lot of employment, a lot of building, because foreign investors see this as a good place to invest, and when all state governments increase the stamp duty from 4 per cent to 12 per cent they take their money elsewhere.

They go to New Zealand, they go to Canada, they go to the UK and they go to the US, and the reason they pick those countries is because if you draw the list of stable governments where valuations are going to hold up, it is probably those four places around the world.

Rob Sindel on Stamp duty

What will the impact be on your business?

Rob Sindel – CSR:

The greatest impact on business that goes across all manufacturing is the increase in energy costs, particularly electricity and gas. That means that we’ve become less competitive. The continual increase in gas costs means you keep pushing up brick costs – then guess what – bricks get substituted for other less energy-intensive products like fibre cement or Hebel. Because 30 per cent of the cost of a making brick is energy – just for gas costs.

So if the gas cost doubles, then that means the brick cost has to go up by 15 per cent just to stay still. So that absolutely impacts on everyone, and impacts on CSR. If we can, we put the price up to recover that cost. That has an impact on brick volumes, and it also means that the consumer is paying more for a house.

The continual increase in gas costs means you keep pushing up brick costs

Craig Muse – Frasers Property:

Frasers Property has operations covering all aspects of the development industry across multiple states. This diversification ensures we are well positioned to navigate the different market cycles that occur at various times in different geographic areas and sectors. We also have the advantage of being part of a diversified global group.

From a residential perspective, our sales have been strong, so our major task over the coming 12 months is to deliver these customers their completed homes. Looking ahead, we expect land and medium-density home sales to continue to be strong, while there may be some slowdown in the apartment market in the near term.

Porter Davis house
There is a finite supply of materials and labour
Photo courtesy Porter Davis
CSR
The greatest impact on business that goes across all manufacturing is the increase in energy costs
Photo courtesy CSR

Adrian Hondros – Porter Davis:

One of the big challenges we have is in the supply chain – economic conditions are favourable, and economic growth drives infrastructure spending. We’re seeing infrastructure commitments by state and national governments. But overall, there is a finite supply of materials and labour. Pine and timber availability is an example. If we dive into the issue – some years ago tax-effective plantations did attract money to grow timber. That fell out of favour, and now, a few years down the track it has affected timber supply.

Also the US economy is doing well, housing is up there, so some suppliers from our region are heading to the US markets. So supply is an issue to think about.

Availability of labour is already an issue. And in the next two to three years we expect to see a large infrastructure boom, which will pull in a lot of the labour. Across the industry there are already labour challenges. All major builders in Victoria and in the north-west greenfield areas are facing labour challenges.

In the next two to three years we expect to see a large infrastructure boom

Dean Humphrey - Humphrey Homes:

We operate in a very niche market delivering custom and luxury homes for WA families living in Perth’s affluent suburbs. Commensurate with that is an expected level of quality and what we find is that when people expect quality, there is always interest regardless of the market conditions. We are due to start a number of large homes this year after development approval in recent months for some very exciting designs. So we are predicting 2018 to be one of the busiest we’ve had in our almost 20-year history. Already this year, we have had strong enquiry which is, hopefully, a good indicator of things to come.

There’s also the issue of digital tech and digital enablement. There’s been some examples of the use of virtual reality technology in the industry. We strongly believe that it has a long-term future, in helping to show people what their home will look like before they’ve built the home. To literally walk through it and see it. So we have a strong belief in that.

Adrian Hondros on Technology

The development industry is one of Australia's biggest employers. When reviewing taxation and policy settings, government must ensure that changes do not have detrimental impacts on the capacity for the industry to remain a major employer and economic contributor.

Foreign investors have been the focus of government in recent times. Stamp duty changes and vacancy taxes have affected foreign buyers, which has impacted the off-the-plan apartment market in particular.

Craig Muse on stamp duty

Frasers Property Australia

A strong housing market supports a healthy economy

Photo courtesy Frasers Property Australia

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