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2021 continues to challenge home builders and residential property developers

Apr 25, 2021

Joe Papadatos, Managing Director

2021 continues to challenge home builders and residential property developers

As we move deeper into 2021 and edge closer to the end of another financial year and a new federal budget, home builders and property developers are facing a number of industry-wide challenges.

The Federal Government’s much-lauded HomeBuilder grant, which has helped prop up the home building industry since June 2020, officially concluded on April 14, while JobKeeper payments to employers also recently came to an end on March 28.

There’s no doubting the success of the HomeBuilder grant scheme, with Prime Minister Scott Morrison announcing that the total anticipated renovations or builds nationally under the program was 42,000.

The conclusion of these COVID-related economic subsidies and stimuli, coupled with industry-wide challenges around materials supply, pose clear challenges for residential builders and the property market as a whole for the remainder of 2021.

The pandemic effect

History will show that Australia managed the pandemic well and is in a much better position than most other economies. Typically, recessions cause lingering impacts on the economy and households, but the pandemic economic recovery is unique due to its speed.

Our return to economic growth minimises the long-term adverse impacts on employment, the participation rate, and wage growth, which obviously has a major impact on residential housing. The residential building industry was also fortunate to experience less interruption throughout 2020 than many other sectors.

In fact, the ability to continue to operate, as well as the stimulus measures, have produced a boom in detached home building. Many indicators have reached record levels following the growth in demand for detached housing that followed the announcement of HomeBuilder in June 2020.

According to industry bodies such as the Housing Industry Association (HIA), new home sales in the December 2020 quarter were almost 100 per cent higher than for the same period the year prior. Loan approvals also reached record levels in the same quarter, and an increase in building approvals and loan activity has also been observed.

Once again, according to the HIA, all of this indicates a strong level of new detached home construction through 2021 and into the first half of 2022.

The impact of lower immigration and geographic shifts

However, it’s not all good news for the residential building sector. The impact of the curtailing of overseas immigration will eventually impact detached housing because many new immigrants build new homes when they settle in Australia.

In its forecasting, the HIA assumes that overseas migration will recommence in 2022 but that it will not return to pre-pandemic levels until the end of 2024.

Similarly, the National Australia Bank (NAB) suggests that for the residential construction sector to fully recover, population growth will need to return.

Migration has recently driven two-thirds of Australia’s population growth and relative to ABS 2017 projections there will be 500,000 fewer people than otherwise by June 2021 if borders remain closed. NAB suggests this equates to 190,000 fewer dwellings than otherwise being demanded.

Land shortages also a factor

Another issue that has recently arisen in South West Sydney is available greenfield land for new housing. In Catherine Park Estate, for example, in the past few months there have been potential buyers camping out for several days to secure a desirable block of land. While this is good news for developers, it’s not so desirable for homeowners.

According to a leading builder, this type of demand for land is not good because it limits housing choice and limits what people can do. Commenting on the issue, Mark Maloney from ANSA Homes said, “it’s back probably to pre-2014 levels when we saw that sort of frenzy in the market – with people camping out for land, and fighting, and security in the lines at ballot allocations for land”.

Challenges ahead for developers and builders

Moving forward, home builders will be tasked with thinking creatively and strategically about their brand identity and how they manage their business. To grow their businesses, home builders will need to carefully consider how they engage and support their customers as they navigate market conditions through the remainder of 2021 and beyond.

How Icon Visual Marketing can help

Icon has a long track record of working with land developers and home builders across Greater Western Sydney through dozens of successful campaigns over nearly two decades.

At Icon, we start every working relationship with a strategic marketing workshop designed to get to the very heart of your business. The whole process aims to clearly establish the unique value proposition that your business has in the market and how we can best leverage this for great marketing results that help to drive sales and grow businesses.

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