Building Revival Forum 2011

No it is not a Hillsong fundamentalist production , although I could easily find some parallels. The Building Revival Forum 2011 is in fact a Queensland government initiative.

On 12 April, a Building Revival Forum will be held with key industry stakeholders to brainstorm ways to kick start Queensland’s vital construction industry, which is still suffering the effects of the global financial crisis.

The destruction caused by the recent Queensland natural disasters may provide short-term work opportunities for some sectors of this industry, but there is still concern about the medium and long-term prospects.

Representatives from the finance and banking industry, development industry, building and construction sector, unions, state and local governments will discuss issues such as:

  • how the economic climate, availability of finance and demographic changes have affected Queensland’s construction industry for both residential and non-residential markets
  • future prospects for the industry, based on historic property cycles and the changing trends of demand for Queensland’s construction sector
  • constraints on Queensland’s building and construction industry and how they can be minimised.

Representatives at the forum will be challenged to come up with practical solutions to improve the outlook for this vital industry in the short and medium term.

So who is invited ?

More than 180 invites have been sent to representatives from 14 local governments and groups like the Property Council, the Urban Development Institute of Australia, the Housing Industry Association and the Master Builders.

Business groups such as the Chamber of Commerce and the Australian Industry Group have also been invited while representatives from the unions, and major banks are also expected to attend.

Now I could easily pick 10,000 holes in this and it would be very easy for me to cast this aside as a step towards an even closer relationship between the building industry and the Queensland Labour party. The supporting documentation also makes me a little nervous.

The estimated housing shortage in Queensland is approximately 40,000 (despite a recent easing of demand) and has widened as a result of:

  • falling residential construction approvals;
  • rising housing prices; and
  • rising residential rents.

Commercial building activity remains relatively subdued, with the exception of retail driven projects, and is being largely affected by:

  • above average vacancy rates (Brisbane commercial market: 11%)
  • timing lags during the development approval process; and
  • challenging lending conditions and limited access to equity.

Financial markets have stabilised to some extent with credit margins generally contracting and the number of financers active increasing the availability of debt in the market. Conditions on debt remain similar to 12- months ago and banks are selective on the locations and projects they are prepared to finance.

Most banks interviewed indicated they are continuing to rebalance their loan portfolios with high quality, low-risk exposures being preferred. This dynamic, as highlighted in the graph below, has constrained the number of ␣ loans reaching financial close and is expected to continue into the foreseeable future.

….

Conclusion

Improvements in the funding market have been offset by bank conditioning and LVRs which, combined with the easing of demand and limited access to equity, remain a significant barrier to development. Therefore, the forecast for the development market in Queensland continues to be characterised by a significant lag in the delivery of new projects.

Now as a housing contrarian this is obviously setting off my alarm bells. However I am a big supporter of economic democracy and I would like to think that this is an example of it.  I will therefore try be positive about this and hope that it isn’t a “lipstick on the pig” event from the usual vested interests.

At macrobusiness we have no issue with the industry arguing for more responsive planning and a reduction in developer charges, as this would help to make the supply-side more responsive, thereby improving housing affordability (in the long-run) and reducing the potential for volatile boom/bust cycles.

I personally however take issue with the use of  the “housing shortage” and “underlying demand” to argue the case because I believe they are circular falsehoods that give the wrong impression about the housing market and therefore lead to the wrong solutions being suggested.

One does wonder however what they can do in a falling market and situations like this arise.

Falling valuations are crushing property deals around the state, placing key projects at risk and further depressing an already weak housing market. Queensland project developers and builders say valuers are being too conservative and failing to compare similar properties, including lots from the same development.

Logan developer Des Ryan said five sales in the past month had fallen through and his own agents had now left, saying it was impossible to close a deal. On the one hand Mr Ryan was able to borrow millions of dollars from a bank to develop an estate at Loganlea in Brisbane’s south, with the bank accepting projected sales prices.

However the bank’s retail arm was now refusing to lend to buyers because valuations have come in lower, in some instances $20,000 below the agreed contract price. Mr Ryan was at his wit’s end after agents spruiking the properties walked away from the project saying it was impossible to close a deal, leaving dozens of unsold lots.

I notice there are some interesting names on the list of speakers including Saul Eslake so I live in hope of a decent outcome and will reserve judgement on this event until I see them. I desperately hope it is a better outcome than the newest announcement from the Victorian government which was recently delivered through twitter via REIV of more of the same.

1st home buyers will be happy that the State Government has announced the $13k bonus and $6.5k regional bonus will continue post 30 June.

I will leave you all to make up your own minds up about what you think the outcome from such an event should, could and will be.

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Comments

  1. The REIV were calling for a increase before, so I doubt they will be thrilled that the grants in Victoria will be staying at the same level.

  2. The logical solution would be to build smaller, cheaper houses that people can afford. However, I expect their ‘solution’ will consist of the good Government guaranteeing mortgage repayments, even for those with no income, job or asset.

    • When I was a lad I grew up on 1/4 acres (1,000m2). Cricket pitch in the yard and a vege patch. Didn’t have to walk the dog he could run himself senseless in the back.

      House had 3 bedrooms, 1 bath, a sleepout(?) and a kitchen with a dining table that could sit 6.

      Now you get lotsa rooms (smaller), a dining cubicle, two places to take a dump and a shower AND on HALF THE LAND.

      Get a dog lead and put the bat away son, get a putter. Times have changed and the developer is the prick that drives by slowly in a German car with a grin.

      • I’d love to have a nice garden where I could grow some veges but with prices as they are I could only afford an apartment. Also agree that houses on new estates are grotesque oversized monstrosities with no section. I can’t understand why people buy them when they could get nearly as much of a back yard if they brought an apartment in the city but with 2 hours less commuting each day.

        • In the Netherlands (and I’m sure elsewhere), people get around strict urban planning controls and apartment living by buying or renting a share in a plot of rural land very close to their home and having a veggie/flower patch or horses or some such outdoor hobby.

          Because there are strict rules on rural/urban land zoning, apartments and small farms and open space can be very close by.

          You see many of these gardening plots around towns with lots of little tools sheds dotted about, each with a little spot to make a cup of tea and sit out of the rain. They are also very social and people get to learn more about gardening from each other.

          I wouldn’t have thought it was very expensive but I’ll have to ask my Dutch friends who are visiting (and also live in an apartment but have a horse!)