Why Builders Aren't Building

Hotspotting

Home builders and property developers make their money creating new dwellings for Australian households.

If they get it right, they can make lots of money doing what they do.

When they decide NOT to do what they do, you have to ask why.

Why are the builders of major projects of housing or apartments walking away from their plans?

Why are big companies who have spent years and millions of dollars planning a major project making the decision not to build it?

We’ve seen many instances recently. An example is the decision by AVJennings to abandon a major housing development near Caboolture in the outer northern suburbs of Greater Brisbane. This project would have added 3,500 new homes to a market where there is a desperate shortage.

Brisbane is a market with high demand and a serious shortage of homes. Why would a big developer with a proven track record and the capacity to deliver these kinds of projects make the very big decision to walk away from the project?

All that time and money wasted.

The answer is: it’s simply not viable.

AVJennings said massive cost escalations – including the infrastructure charges and delays in getting approvals imposed by local councils – meant the project was no longer viable.

I have had discussions recently with developers who say that the cost of creating big residential projects is so high, it’s not economically and financially feasible.

They would have to place such a high price on the end product that few households would be able to afford to buy the homes.

A number of developers have spoken out about the impact that the cost impositions of local councils have on making projects difficult or unviable.

Orchard Property Group managing director Brent Hailey says the major infrastructure costs imposed on them make it too expensive for them to build homes.

Hailey said that, for example, developers in that Caboolture West precinct that AV Jennings has rejected had to pay for council infrastructure charges and also state government charges because it’s in a Priority Development Area.

Hailey says: “We’re at this point now in SEQ where unless the solutions are put in place quickly, there’s going to be a rapid decline in affordability, forced by supply not meeting demand.”

He says: “The problem facing developers is the cost of delivering the infrastructure and the balance between fully servicing those costs and trying to get an affordable home. There’s the normal council charges and the Priority Development Area (PDA) charges. During Covid-19 costs went through the roof, so now infrastructure is costing a lot more.”

Here’s another issue which is preventing the creation of affordable homes in Australia.

Prime Minister Anthony Albanese’s pledge to build 40,000 affordable homes through the Government’s $10bn housing fund will struggle to deliver any houses at all in Labor’s first term of office because only a handful of builders in Australia are eligible to participate in the program.

Rules written into the Housing Australia Future Fund legislation require builders contracted to work on new social and affordable homes under the scheme to be accredited for working on government-funded projects.

However, of the more than 400,000 construction companies registered in Australia, only around 500 are accredited by the Federal Safety Commissioner under the Work Health and Safety Scheme for eligibility to bid for head contracts funded directly or indirectly by the government.

There are few if any residential builders accredited under the scheme in Tasmania and only a limited number in regional Australia.

The industry claims the limitation threatens to severely hamper or stall Housing Australia’s ability to deliver its target of 40,000 social and affordable homes.

This comes at a time when the new construction code being imposed by governments is adding $30,000 to $40,000 to the already-high cost of building new homes in Australia.

These are just the latest events adding to a substantial list of situations which create the inevitable conclusion that we have a serious housing shortage in Australia, and very expensive new homes in this country, because of the short-sighted policies of politicians at all levels of government.