Industry insiders

HOUSING spoke with our insiders about the issues that may affect the residential building industry as we move into 2021, and how they are navigating the impact of the pandemic.

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COVID-19 caught us all off guard in the early parts of 2020 – globally.

Budgets, business plans, investment strategies, marketing campaigns, standard operational procedures, digital priorities, and even working from home policies, were turned inside out.

Few would have built the operational and financial contingencies into their businesses for this level of disruption.

Now, as we (hopefully) move into a post-COVID world that weaves a strong sense of caution and relief into our national recovery roadmap, we ask four industry leaders to share their views on the year ahead:

What have we learned from 2020?
What is the COVID-19 legacy?
How do we plan for the year ahead?

As you might expect, their responses are varied, more so given the scope of their business operations and coverage. While immigration, employment, consumer confidence, demand, a COVID-19 vaccine and border restrictions get a mention, the overriding view is one of optimism.

Despite the level of disruption we have individually and collectively experienced, we remain confident that the ‘Lucky Country’ will do well in its post-COVID recovery – with residential building activity at its forefront.

How will the economy shape the building and construction industry in 2021?

John Bowen – Bowens and Timbertruss:

To this point in time, builders have been incredibly resourceful in finding work and keeping the industry’s wheels ticking over. I question how much of Australia’s demand has been pulled forward? For the housing industry to bounce back, it requires increasing volumes of working Australians.

Depending on who is telling the story, the number of employed citizens is going to be an issue. The 2020 Federal Budget suggests unemployment will increase to 7.25 per cent by mid-2021, NAB says 8.0 per cent while the RBA, in August, quoted a number above 10 per cent. Remembering how poorly our recent, positive predictions have been in relation to finding a COVID-19 vaccine or the reopening of borders, the worst-case scenario cannot be discounted.

Immigration is the other, significant factor. The negative consequences of almost zero international migrants through 2020, and into 2021, have been well documented. Even so, Australia should remember how attractive we could be to the rest of the world.

Angela Gianakis – Outside Square:
I feel the industry is going to be busy in the first half of the year and it may well linger on, depending on building and planning approvals. Because people aren’t travelling, many are spending money on their kitchens and bathrooms instead. A lot of suppliers to the kitchen and bathroom industry have closed off their work prior to Christmas, with orders right into February and March 2021. It may taper off mid-year, but that will depend on the government’s plans. If the government keeps stimulus high, then we will continue to see growth. However, if our unemployment rate rises and there is uncertainty in the marketplace, it will filter into our industry and people will inevitably become very careful on how and where they will be spending their money.

Michael Hurley – Aria Property Group:
This is a complex question however from our perspective we have observed a clear flight to quality and owner-occupier standard product during the last six to 18 months, which we see continuing. There is always a weight of capital looking to invest in direct property and in uncertain times, purchasers gravitate to developers with a good track record who are heavily vested in their projects. While international migration is reducing, in Queensland we are benefiting from significant interstate migration, which will increase.

ANGELA GIANAKIS ON EMPLOYMENT

COVID gave businesses an opportunity to review a lot of their systems and procedures, plus it gave them the opportunity to review their staffing. People are working more productively, and perhaps have realised they don’t need their current staffing levels to complete their pipeline of work. I do know some of our suppliers have reduced their overheads in order to stay alive, and the quickest way to do so is to cut staff. That’s why I believe we will see unemployment levels increase into the foreseeable future.

How will your business continue to navigate the impact of the COVID pandemic?

Dale Alcock – ABN Group:

2020 has been anything but normal. Everyone and every business has been impacted by the pandemic in some way. It has resulted in our businesses becoming more highly reactive and flexible.

An immediate challenge as various restrictions were imposed was cash management. Our much longer term cash flow planning will better assist us in navigating our businesses through future challenges.

While safety has always been our number one priority, our focus moved to include the required safe working and safe distancing protocols related to the pandemic. Many of the learnings and the changes that we made have led to a permanent change in our expectation onsite.

We now operate in an environment where we expect there to be constant change – expect the unexpected is our new mantra.

John Bowen – Bowens and Timbertruss:
When the stage three lockdown was announced (95 per cent of my business is generated in Victoria) I assumed disaster lay ahead. However, throughout 2020 our business has worked in well with the various COVID-safe disciplines required by government. Our employees have appreciated having a job as they witnessed many of their family and friends who have been negatively affected. We have been able to make things work through some difficult circumstances. A bounce in retail home improvement activity was a welcome bonus.

For 2021 we hope to build new facilities, release an eCommerce offer for trade and continue to improve our ‘next stage’ prefabrication solutions out of Timbertruss. At Timbertruss we are focused on assembling our walls, roofs and floor systems faster and with more accuracy, while investing heavily in our off-site building solutions. In our timber yards, we will do all we can to differentiate while focusing on being our best at the essentials. It is our strong belief we can’t go into our shell. We must continue to build the business for tomorrow, while dextrously accommodating the obstacles COVID-19 throws up. ‘Small builders’ are too often forgotten; they are our priority and we are in a good place to support them as COVID-19 restrictions lift.

Angela Gianakis – Outside Square:
We’re very fortunate in South Australia with the way COVID-19 has been managed, although the unknown in the first couple of months did affect business. However, some suppliers have said work is booming in South Australia compared to other states as a direct result of COVID. The pandemic has encouraged people to support locally. At Outside Square, we’ve been very fortunate that our business hasn’t suffered in all areas – we have three facets to our business – and while retail came down, the design side increased. But we are being careful who we take on. I know of builders who have closed their books, and I don’t know of a joiner who can take on additional work before the end of the year.

Due to government programs such as JobKeeper, finding staff to work on a part-time basis across the board has been very challenging. It will soon be a different story because the government is reducing these, and that is likely to impact on people starting to look for work again.

DALE ALCOCK ON APPRENTICES

Our industry across the nation needs to commit to training tomorrow’s trades and future builders. The ABN Group Apprenticeship Program has graduated more than 1200 tradespeople since its inception. We are hiring an additional 20-30 per cent more apprentices because of the housing stimulus packages.
Why? Because our future depends on it!

What other issues or factors might affect the industry over the next 12 months?

Dale Alcock – ABN Group:

We need to stop commenting and considering our industry as one market. Australia is a large country and the various regions have localised factors that affect us differently. While the high-level factors, such as immigration, interest rates, regulation [albeit these vary wildly between states] and energy costs impact all housing markets in our country, it will be the local factors such as employment creation, consumer confidence, competing labour markets and local economic growth that are far more powerful drivers of the health of your local housing market.

The contrast of the east versus west was never starker than between 2015 and 2020. Over this period, the NSW and Victorian housing markets were generally very strong and the property market demonstrated strong growth. By contrast, the West Australian housing and property markets were experiencing historic lows. That said the largest potential factor to influence our industry over the next 3-5 years will be immigration levels. In WA, we have a skills shortage right now. Within 12 months, we will not have an unemployment problem of any significance. The effect of the federal and state stimulus packages has meant that in WA we have gone from historic low levels of activity to historic highs forecasted over the next 12-18 months. So, we need skilled labour and we need it now.

John Bowen – Bowens and Timbertruss:
Has too much work been brought forward? Will the ‘HomeBuilder’ program end up resembling a sugar hit? In late May, I spoke with volume builders who had close to no jobs ready to start in September. They are now okay until Easter 2021. What comes next?

Throughout winter, there was a delay in getting small renovation work completed, or even started. We are hoping the slowdown in these jobs will have led to a build in demand, with a surge in activity for trades and builders either side of Christmas. Possibly my largest concern is the uncertainty. With no clear picture of when we will be done with COVID-19 or how the economy will respond, how do we prepare?

Angela Gianakis – Outside Square:
We’ve spoken to our suppliers overseas in Europe and China and they’ve said it is still essentially business as usual. I think it depends on how a government responds and reacts in terms of the number of cases and how it deals with it.

Lower levels of immigration to Australia may affect building in terms of workers and investors. If the cost of employment wasn’t so high it wouldn’t affect us as much as it is being predicted to. If Australia is to continue to benefit from immigrants coming to our country, the base wage needs to be reviewed. At the moment, it’s cost prohibitive – it affects every business. One of your biggest overheads is the cost of your staff, with the cheapest rate to employ someone on a casual basis at $23 an hour. That’s not to say that people aren’t worth it, but more businesses would employ more people if it didn’t impact on their bottom line so significantly.

Michael Hurley – Aria Property Group:
We are quietly optimistic about the next 12 months, especially in Brisbane and South-East Queensland. This is for a range of different factors, including high interstate migration, low inventory, a sub-tropical lifestyle, large government infrastructure projects and the Australian and Queensland Governments’ world leading pandemic response.

We are also going to be in a low interest rate environment long-term, which makes Brisbane’s yields very appealing. We will continue to pursue market leading sustainability and efficiency initiatives, and provide more flexibility for people working from home.