With Australians signing up for the Federal Government HomeBuilder program in droves, approvals for new dwellings and the subsequent lending to building them have skyrocketed – creating a residential construction boom. However, cracks are beginning to emerge on the back of timber shortages and the rising cost of building materials.
The HomeBuilder program did what it was designed to do
In June 2020, during the height of the Covid-19 pandemic, the Federal Government introduced the HomeBuilder program. It was designed to stimulate the residential construction sector and create jobs as the country recovered from the pandemic.
The government offered a $25,000 grant for any new residential build or substantial renovation – providing construction commenced within three months, and the home value was less than $750,000. Given the time constraint, new dwelling approvals immediately skyrocketed.
The program was extended in November 2020 but with a reduced grant of $15,000. However, the value of eligible homes increased to $950,000 in NSW, $850,000 in Vic and remained at $750,000 for all other states. To offset the spike in demand, the government gave builders six months to commence construction.
HomeBuilder has undoubtedly been successful in stimulating the residential construction sector. Never ones to knock back a free lunch, Australians have signed up in their droves. The most recent figures from the Australian Bureau of Statistics (ABS) showed:
- New dwelling approvals increased by 64%
There were 43,596 approvals between February 2021 to April 2021 – 64% higher than the same time last year and 52% above the long term average.
- Loans for new dwellings increased by 93%
In April 2021, mortgage lenders offered $3.21 billion in loan commitments to construct a new dwelling, which was below the peak of $4.25 billion in February 2021, but still 93% higher than the same time last year.
Over the long term, we can see that the number of new dwellings commenced has followed a similar trend to new dwellings approved. And since the announcement of HomeBuilder, it appears as though this trend is continuing. The most up to date figures from the ABS showed 33,761 commencements in the three months to December 2020, which was 35% higher than the same time last year and 22% above the long term average.
So the question needs to be asked, will the number of new dwellings commenced in 2021 keep pace with what has been a dramatic spike in new dwelling approvals?
Given ABS data for new dwellings commenced is only available until December 2020, it’s too early to answer that question. However, what is apparent is the need for a significant and sustained increase in the number of new dwellings commenced during 2021 if the long term trend is to continue.
Material shortages could bring it all undone…
At WBP Group, we’re beginning to see anecdotal evidence that suggests significant cracks are forming in the construction sector.
Material shortages are now commonplace – for timber in particular. The cost of timber has risen, and lead times for deliveries have blown out as suppliers struggle to keep up with demand. But it’s not just timber. Most of the essential building materials used to construct a new dwelling are experiencing similar issues.
ABC News reported in May 2021 that one builder in Tasmania who usually only had to wait a week for structural timber was now having to wait three months. Another builder said he was waiting up to 10 weeks longer for laminated timber beams, trench mesh and steel.
The cause of these material shortages appears to be the result of a confluence of events:
- Local timber shortages
The Black Summer bush fires saw the loss of tens of thousands of hectares of softwood plantation intended for the construction industry.
- Stiff international competition for imported materials
Like Australia, countries worldwide are attempting to stimulate their own construction industries, creating a highly competitive market.
Speaking to ABC News in April, Cameron MacDonald, executive general manager of OneFortyOne, the largest integrated forestry company in South Australia, had this to say –