A few years ago, the residential construction sector in Queensland was going through a rough patch as the European crisis and the aftermath of the GFC saw housing starts drop by around a third, money for large multi-residential projects dry up and those unable to secure work on resource projects finding the going tough.
Fast forward to 2015 and things are different. Approvals for new houses and apartments for the first four months of the year were higher than they have been over the equivalent period for more than 20 years. Builders who say housing sector conditions in the June quarter are stronger than the previous quarter outnumber those who say conditions are weakening by more than three to one.
From price ranges of $230,000 to $5 million, Brisbane’s apartment market is flying high. Places like Fortitude Valley, Bowen Hills and South Brisbane are considered the ‘future precincts’ that will help develop Brisbane. Housing starts in calendar 2015, the HIA reckons, will be higher than for any other time in the past 10 years.
Leading the charge is the multi-residential sector, where approvals in the first four months of the year came in at their highest levels on record, mostly in Brisbane. Indeed, more than 110 multi-unit complexes were registered in the city last year, according to consultancy URBIS.
In terms of regions, meanwhile, conditions are understandably soft in resource related areas such as Central Queensland and Mackay but are red hot in Brisbane, the Gold Coast and the Sunshine Coast.
A number of factors are driving this. Low interest rates taken several hundred dollars off the monthly mortgage repayment of even modestly priced homes – a factor which has seen housing finance commitments rise since the middle of last year. State grants of $15,000 awarded to first-home buyers who buy or build a new home has also helped. Prior to the recent recovery, a combination of strong population growth and several years of low building activity had no doubt resulted in a shortage of supply. Foreign investment, which according to a Property Council survey accounts for around 15 per cent of new residential property sales across Queensland, appears to have been picking up as global financing conditions have improved and a lower Australian dollar has made inbound investment relatively cheaper.
While the current strength of the market is welcome, it is also placing pressure on the availability of skilled tradespeople in some areas. In its most recent report, quantity surveying outfit WT Partnership suggested that structural trades including formwork, concrete, post-tensioning, and reinforcement fixing are experiencing supply bottlenecks resulting in above average price escalation, while finishing trades are becoming less competitive and mechanical services trades are in short supply.
By way of contrast, however, tradesperson-finding service Servicseeking.com reckons average prices for residential tradies throughout Queensland dropped by more than seven per cent in the past quarter. Compared with the same time last year, prices of carpenters and handymen are down almost six per cent and those for painters and plumbers are down by more than two per cent. More than likely, this is a reflection of both softer activity in the renovations sector (which is generally expected to persist for a number of years) and the fact that in new home builds, the detached house sector – while growing – is not as strong as the multi-residential sector.
Going forward, talk about an oversupply of apartments in Brisbane is emerging and prompting anxious developers to think twice before going ahead with new projects. Already, a number of previously planned and mooted developments have been deferred or abandoned.
Urbis, however, says such talk is premature, and that demand for apartment sales in the first half of this year is likely to trail the volume of new supply coming onto the market but not by much. Modest levels of population growth – expected to average around 1.7 to 1.8 per cent per year over the next four years, according to the most recent Federal Budget papers – should help underpin reasonable levels of buyer activity.
Moreover, while new apartment construction might drop back, the Housing Industry Association reckons detached house construction is likely to continue to strengthen in the near term, especially as developments such as Lend Lease’s Yarrabilba community and the Pacific View Estate Masterplanned Community on the Gold Coast get going. Because of this, the HIA expects overall dwelling commencement numbers in the order of 40,000 plus over at least the next four years.
With office vacancies soaring amid the end of the resource boom, meanwhile, one final phenomenon which should be borne in mind is the potential for activity in the conversion of older office stock in Brisbane to new residential stock. By some estimates quoted by corporate real-estate agents last year, around 170,000 square metres could be converted between now and 2017.
Already, a number of purchases have been made with stated conversion intentions on the part of the buyer. Student housing is being encouraged, with the government announcing earlier this year that developers would be offered discounts on government infrastructure and utilities charges of more than $13,000 for each residential unit to be built. Plans for up to 350, studio and multi-share apartments were recently drawn up with regard to the conversion of Boeing House at 363 Adelaide Street, for example.
After a lean period, good times have arrived for the Queensland residential construction sector.
For now, it looks as though they are here to stay.