Record national home approvals creating supply constraints for builders

Record national home approvals creating supply constraints for builders

A surge in national building approvals is creating major supply constraints for pockets of the construction industry as homebuilders scramble to meet demand for new projects.

The Australian Bureau of Statistics (ABS) says the number of dwellings approved in February jumped 21.6 per cent month-on-month to 19,422 after a 19.4 per cent fall in January.

This is the highest number of approvals of any month since the ABS began keeping track of the data in 1983.

Demand for freestanding homes hit 13,939, a new record buoyed by the federal government's HomeBuilder grant.

The latest statistics reveal the extent of insatiable demand for detached housing, with approvals for houses now 57.5 per cent up from a year earlier.

Housing Industry Association (HIA) chief economist Tim Reardon concedes the building industry faces challenges in meeting the current boom. The HIA has forecast 130,000 building starts in 2020, up from the previous record of 120,000 in 2018.

"We've never built this number of homes in a calendar year before," Reardon says.

"Even in a good year that would put the industry under pressure to deliver when we would normally expect skills shortages and constraints on building supplies.

"This year we are seeing restraints occurring globally as other markets experience a surge in construction of detached housing as well."

Imports being 'stretched'

Reardon sees the key constraints for the industry occurring in the supply of land, labour and lumber. While Australia's building industry sources most of its timber domestically, some 20 per cent is imported.

"The imported component is being stretched at the moment. It's not a price issue but an availability issue."

Australia's largest homebuilder Metricon has revealed its home sales are currently running 20 per cent above average thanks to the government stimulus.

Metricon director Peter Langfielder says while he has heard of isolated cases where builders are facing supply problems for some materials, Metricon is well placed.

"We were still signing contracts ahead of the deadline because we believe we can meet all contract obligations," Langfielder says.

"We're very fortunate being the largest builder in the country that we have great relationships with our suppliers and trade base, so we've been able to secure those materials."

However, Langfielder warns that external influences, such as the recent floods, may impact timeframes in some areas.

Under the HomeBuilder grant, construction is required to start within six months of signing a contract. Industry bodies including the HIA are understood to be lobbying to gain further extensions where needed.

Renovations adding pressure

Supply constraints for the industry have been exacerbated by a home renovations boom which is running parallel with record building approvals.

"Home renovations make up a third of the market and they have been at record levels month on month for the past six months," says Reardon.

"It's an excellent problem to be experiencing and HomeBuilder has done its job."

Reardon expects the benefits will flow through to construction jobs for the next two years.

"The record volume of work will see home building absorb workers from across the economy in 2021 and into 2022," he says.

"This positive outlook for detached home building is in stark contrast to that of the multi-unit sector. The absence of overseas migrants and students will continue to impede multi-commencements.

"Multi-unit approvals remain lower by 21.6 per cent compared to the same quarter last year. Multi-unit projects that are gaining approval at this time are likely to have commenced the planning and building approval process before the pandemic."

Reardon sees the apartment market remaining subdued until overseas migration resumes.

Metricon's Langfielder is confident the building industry will remain active for some time yet despite the HomeBuilder scheme now finished.

"We've noticed over the past four to six weeks a lot of inquiry and sales from customers that are not eligible for HomeBuilder and not looking to access the grant," he says.

"There seems to be more momentum in the market despite the grant. We're reasonably confident that it's going to continue to be a strong market.

"There's been a pull-forward of first homebuyers taking up the grant. They may ease off now, but that seems to be taken up by second and third homebuyers and even investors coming back into the market."

The ABS data showed dwelling approvals growth was highest in Queensland, up 40.5 per cent for the month, and Tasmania (up 31.6 per cent). This was followed by Victoria (21.7 per cent) and Western Australia (19.1 per cent).

However, Victoria led approvals by number with 4,213 house approvals, up 11.1 per cent for the month.

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