More than 27,000 new home projects shelved by crisis hit construction industry
Billions worth of new home projects have been shelved at a time when Australians are facing a huge crisis in the property market.
A whopping 27,000 homes due to be built have been shelved by developers with warnings that they may never be constructed despite Australia facing a housing crisis with a severe shortage of rentals and properties for sale.
The research from KPMG revealed a 30 per cent surge in residential construction costs over the last two years has prompted developers to halt projects with almost 16,400 dwellings in New South Wales approved but not yet commenced by the end of March.
In Victoria, almost 10,500 homes were approved but construction had not yet commenced by the end of March, up significantly compared to 5000 dwellings at the same time the previous year.
The value of the 10,400 dwellings that have been abandoned for now in Victoria is worth a whopping $4.3 billion.
Around three quarters of the not-yet-commenced dwellings in NSW and Victoria are also slated to be apartments or townhouses at a time when the rental vacancy rate hovers around 1.4 per cent.
“Property developers are shelving projects because of soaring costs and lacklustre property prices. Some are even going bust,” KPMG urban economist Terry Rawnsley said.
“Both Victoria and New South Wales have increased demand for new dwelling approvals, but dwellings are far from materialising, due to significantly higher input costs and a potentially lower return on investment.”
Eleven interest rates increases have also hit the industry hard placing increasing pressure on company’s finances and slashing buyer demand forcing developers to halt projects to see when the property market will stabilise.
A dozen building companies have collapsed this year alone including major players such as Porter Davis Homes with the crisis hit industry struggling with fixed price contracts despite the rising cost of labour and construction materials as well as supply chain disruptions.
The latest to go under was Tasmanian building company Multi-Res Builders, leaving multimillion-dollar projects in the lurch, while developer Property Solutions Holdings, responsible for some of Brisbane’s most famous urban renewal projects also failed recently.
PBS Building, a multimillion-dollar firm which did a mix of commercial and residential projects across Queensland, NSW and the ACT, also sent shockwaves through the industry when it collapsed.
Other firms to go bust include NSW apartment developer EQ Constructions and a Perth building company called Hamlen Homes with both owing millions to creditors.
Mr Rawnsley warned the huge increase in construction costs and a trouble plagued industry – with the threat of more companies going bust – meant the problem would continue with a bank of projects likely to be kept on hold.
He said the cost increases in particular were uncharted with prices soaring by 30 per cent in the space of just 12 to 18 months.
Developers in particular had ordered workers to down tools as they don’t know how much construction will cost and instead face a huge blowout in costs at a time when property prices have fallen.
“These not-yet-commenced dwellings represent a pool of approved homes, which can be quickly delivered when market conditions improve,” he added.
The KPMG research found the last time construction levels stalled with a high number of approvals in NSW was in 2019.
This occurred when developers were not commencing projects due to historically high vacancy rates around 3.5 per cent in Sydney, compared to about 1.4 per cent now.
For Victoria, only December 2017, recorded a higher number of around 11,400 of homes not yet commenced due an apartment building boom in Melbourne’s CBD and a drop in international population growth.
But it’s not the same story around Australia.
Queensland and Western Australia have not seen the same slowdown in residential construction, largely due to the fact that house prices in those states have remained comparatively more robust, Mr Rawnsley noted.
Those states also have a smaller proportion of new medium and high-density dwellings, which tend to be more sensitive to cost increases, he added.
Yet building companies across Australia have gone under including award-winning residential construction company Delco Building Group in Victoria, Queensland-based National Construction Management, NSW’s Allworks Building Pty Ltd as well as Ajit Constructions which was ordered into liquidation by the Supreme Court of NSW.
Meanwhile, the Housing Industry Association (HIA) has warned that despite record levels of migration, the number of new homes commencing construction is set to slow for at least the next 12 months.
New home sales are almost 50 per cent lower than a year ago, the HIA report found, while lending for the purchase or construction of a new home has fallen to its lowest level since 2008.
“There has been a rapid slowdown in the volume of new building projects entering the pipeline, especially new apartments, over the past year,” said HIA Chief Economist Tim Reardon.
“The sharp increase in the cash rate has compounded the barriers created by extraordinary restrictions on lending and investing, increased construction costs and regulatory costs.
“The rise in the cash rate is the key reason for the slowdown in the number of new homes commencing construction. There are long lags in this cycle and the full impact of the increases to date will not be apparent, until late 2024.”