Not All Suppliers Benefiting From Housing Boom

By
Friday, December 5th, 2014
liked this article
Embed
Lovegrove Solicitors – 300 x 250
advertisement
residential construction
FavoriteLoadingsave article

Not all suppliers are benefiting equally from the current boom in housing construction, a key consulting team in Australia says.

BIS Shrapnel acknowledges that the current upswing in new housing construction is boosting the fortunes of the majority of suppliers, but warns the benefits of this are spreading unevenly throughout the sector amid a combination of growing popularity of multi-residential units, stronger import competition, increasing supply side influences on material usage as well as persistent weaknesses in renovations activity and subdued conditions in commercial building.

“Sales are booming for many building supply businesses, but for others the housing upswing is yet to show through,” BIS says. “In some markets demand arrived earlier than usual, while others may miss out on this cycle altogether.”

It notes that supply conditions are being impacted by a number of long-run factors.

First and foremost is the increasing dominance thus far in the recovery cycle of multi-residential units. An abnormally high share of this type of housing proportionate to the overall number of new dwelling units approved (40 per cent plus in the past two years, as opposed to around a quarter historically) means the current upswing has not benefited suppliers of things such as swimming pools, fencing, outdoor furniture, sheds and garages or indoor products such as carpet and floor tiles as much as it would if the recovery was weighted more heavily toward detached housing.

Then, there is growing penetration of imported goods; ABS figures indicate that the dollar value of materials such as iron and steel, cork and wood and heating, cooling and plumbing fixtures which were imported in the first ten months of this year was 33 per cent, 39 per cent and almost 80 per cent higher respectively than it was compared with the same period five years ago.

Furthermore, some materials are being impacted by shifting patterns of demand and structural factors such as sustainability, cost, a move toward open floor plans and the emergence of modular construction methods. Brick making operations of companies such as Boral, for example, are struggling amid a push toward less intensive use of bricks on east-coast markets, while carbon related concerns mean concrete is increasingly losing favour to lightweight alternatives.

Moreover, outside of new residential builds, activity in home renovations (which account for almost half of some supplier’s businesses) is at decade-long lows. Activity in commercial building, meanwhile, is showing a modest upturn in building activity in terms of facilities such as warehouses and shops but declining activity on offices, schools and hospitals.

To be sure, conditions are generally improving for most suppliers. Boral, for instance, lifted its underlying profit by 64 per cent in 2013/14 and expects a doubling in earnings of its building products division and improved earnings in cement and construction materials this year. Paint maker Dulux, meanwhile, lifted underlying profit by 21.4 per cent in the year to September and expects higher profits again this year.

Moreover, the impact of some of the aforementioned shifts should not be overstated. While apartments have accounted for the bulk of the rise in new home building, for instance, Housing Industry Association chief economist Harley Dale notes that the detached house market has still been growing and that the recent demand for apartments and multi-units “doesn’t mean that all-of-the-sudden nobody wants to live in low-density housing.”

That said, BIS suggests the impact of the aforementioned factors should not be underestimated.

“It’s no secret that the recovery in residential building is well underway, with national dwelling approvals reaching 193,668 in fiscal 2014 – an increase of 30% since the 2012 trough and their highest annual level since 1995,” BIS said. “However, this upturn is so far proving somewhat unusual for many in the way it flows through to building materials supplies, industry conditions and the greater economy.

“The reason has to do with long run trends in the industry overlayed with the unique mix of building in this latest cycle.”

Embed
FavoriteLoadingsave article

Comments

 characters available
*Please refer to our comment policy before submitting
Discussions