Issue 22 | Thursday 3 November 2022 | Any signs of relief in sight for housing supply?
Hi, Andrew Bell with you, today I thought I’d share with you a quick snapshot of the most fundamental of all drivers of real estate, and that is the supply and demand equation. I’m particularly focusing on the supply side in this report, and this is really what’s kind of fundamental to where we’re going to go with pricing.
Tell you what, great, we’re back into a summer’s day and we’re here at this breathtaking home. So whilst I give you my report, have a good look at this home, at 2164 Beaufort Way Hope Island. It’s a north-facing waterfront home, 900 square meters of land and it’s a contemporary pavilion style, only a few of them around, it’s really unique. I’ll let the visuals tell most of the story (watch the video above) and I’ll give a little bit more information about the home at the end of this report.
For most of the past 50 years, Australia has dealt with low construction levels relative to our population growth and this has always been an underlying support for real estate prices as we were locked down and our borders closed to combat COVID. The concern actually was that the demand for real estate would just disappear and prices would collapse, which would add to the increasing number of people having to sell due to economic hardship. What did happen was that people were actually forced to reassess their whole housing needs. They were locked down, they couldn’t travel overseas, and were forced to spend more time at home, a great deal more time at home. As a result, in great numbers, Australians across the country reacted by either looking for new or bigger homes or downsizing or deciding to build brand new homes for themselves, or, as many did, just decentralise and moving out of the regional areas and build homes there.
Home renovations and building a home became a huge attraction for so many. Now what we saw was a huge jump in approvals, people putting proposals into the council to build a new home. Now, these were either people looking to live in properties themselves or for holiday homes. It could be the houses that they were building, or it was developers who were looking to build high rises or medium rises for people. Now, you know what? If every one of those approvals translated into completed dwellings down the track, then there would have been a serious problem in that we would have had a significant oversupply of properties on the market for sale.
Now of course, with the return of immigration going back to normal numbers, we would have, you know, maybe had a counterbalancing. However, what we remember is that building approvals don’t translate into the same construction numbers. Key point, not the same construction numbers. There was an amazing 270,000 homes that have been approved for construction in the last couple of years. But that’s well in excess of the number of homes that were needed, the construction numbers are nowhere near the trend line of approvals and this is largely because of a number of factors. Building costs have gone through the roof and whilst they may trim back a little bit as we move forward, the reality is the cost of producing building materials has risen sharply around the world, driven by factors such as the demand for labor. Labor costs are going through the roof and most of those costs are now ingrained in building supplies and given the cost of building has now gone up 23% for a home since the start of the pandemic and high-rise construction has gone to 57%.
You’ll see that there are going to be so many properties that will not be constructed, all squashing the dream of so many and we’re looking to build new homes. So whilst no one knows exactly how the next few years will unfold, the most likely scenario is the construction levels will not jump significantly or certainly significant enough to do anything to help with the housing crisis and the shortage of properties that are on the market for sale and so don’t expect that to be softening the real estate market any time soon.
None of us yet know just how many people will seek to migrate to Australia. That will boost the demand that’s going to be there but we do know that it’s likely back up around that 300,000, which was our normal immigration number very quickly and we may need to get to extend that because of our critical need for skilled labor. Hundreds of thousands of skilled labor are needed right now. So we’re likely to see an uptick in immigration for some time and that just means stronger demand and the problem is that we just don’t have a sufficient supply that will certainly support the real estate market. Now, of course, that doesn’t mean that prices will go back to anything like the boom, nor the prices won’t suffer some downward pressure if economic conditions result in a recession or long periods of high interest rates. So there’s a lot to keep an eye on moving forward, but it’s natural that we all look for signposts to help us with our forecasting and supply & demand are just two of those factors.
So what do you think of this beautiful home at Beaufort Way, beautiful in every dimension and it’s certainly got that luxurious feel about it? It’s in the gated estate with 24-hour security, great when we know what we’ve been seeing so often about home invasions and car thefts, no need to worry about that here. This is a stunning home that’s been built by people who absolutely know how to make a home stand out from all the rest. It’s also been really newly refurbished and particularly around here and all the rear decking areas. It’s got its own feature fireplace in the dining room and for the cooler nights that’s just what you want. But most of our year up here is in the warmer weather and so we’ve got this great outdoor living space, a media room, they’ve got separate quarters, completely separate quarters for the interstate visitors. Oh, nice to be able to put them in another room with their own bathroom separate wing. And of course, it’s ideal for those with a boat. It’s bridge-free and has easy access to the Broadwater. Now, details of our agent, Lorraine Drysdale on screen now, give her a call because this is unique and she can make sure that you get to do an inspection of the home. It’s in the highly sought-after northern area of the Gold Coast, it’s just going from strength to strength.
Well, here we are finally in November. I know we’ve all been perplexed about what’s been happening with our weather. But I can finally say to you, we’ve got some sunny days and the great news is that the weather bureau has told us that the La Niña effect will be over by the end of November and that we’ll be back to some normal weather. So I am looking forward to a great summer here on the Gold Coast.
As I mentioned in previous market updates, if you are thinking of selling, be a part of The Event 2023 program. Details on screen about that now. But we do send all of our love and care to all of those in various parts of Australia at the moment who have been suffering from the flooding. I just don’t know how you guys handle it. Many of you have been through this two, three, and four times. It must be so heartbreaking.
Wishing you all the best for now. I’ll be back with you in a fortnight’s time.
Andrew Bell, OAM
Chief Executive Officer
The Ray White Surfers Paradise Group