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Builders facing a tough year ahead

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Builders facing a tough year ahead

Building approvals are down while costs are up – the Sunshine Coast’s all-important construction industry is bracing for a challenging 12 months ahead.

New home approvals on the Sunshine Coast have fallen by 26 per cent as experts say the region’s crucial construction industry faces a series of challenges.

The latest snapshot, for the April quarter, shows the number of apartments and units approved also fell, dropping by 52 per cent.

Industry experts say the data looks worse than reality as the figures are compared with the “unprecedented” highs seen over the corresponding period the previous year and are still above pre-COVID levels.

However, ongoing material price rises, critical labour shortages, housing affordability, inflation and interest rate rises pose significant challenges for the market in the next 12 months.

Another major issue is an undersupply of shovel-ready land that experts say could constrain building activity in 2023.

Despite new home approvals, renovations continue to rise.

The value of alterations and additions on the Sunshine Coast in the three months to April 2022 was $70.26 million, up 22 per cent on 2021, but down four per cent over the past 12 months compared with the previous year.

Housing Industry Association (HIA) branch manager Ken Smith tells Sunshine Coast News that new home approvals are expected to fall in the next 12 months, but there is still plenty of pent-up demand in the system.

Mr Smith says the figures are coming off unprecedented highs from last year, buoyed by the $25,000 federal home builder grants and extremely low interest rates, and “people scrambling to take advantage of them”.

“The latest approval figures are certainly down, but coming off an extremely high base,” he says. “The 12-month snapshot, which shows a slight drop, is a better reflection at this stage.”

Mr Smith says there are major concerns for the sector, which employs tens of thousands of people on the Sunshine Coast.

The majority of builders in the industry currently are caught in “a profitless boom” as material and labour costs are spiking and lead times for many home completions have blown out considerably.

“There seems to be enough work in the  system for 12 months, but whether there is going to be any profit for builders is a different story.”

Mr Smith says most builders employ dozens of sub-contractors, so there is “an enormous flow-on effect” to the local economy.

Ray White chief economist Nerida Conisbee also highlights the building industry is facing numerous challenges that will impact established house prices, which have already exploded more than 60 per cent during the pandemic.

The median on the Sunshine Coast is now $1.108 million, the second-highest in the country, behind Sydney and ahead of Canberra.

HIA economist Angela Lillicrap says land supply is set to constrain building activity in 2023.

“The decline in the volume of sales while the price continues to increase rapidly is a clear indication that there is a significant shortfall of shovel-ready residential land,” she says.

“Other leading indicators, including HIA’s New Home Sales Report, show that demand for housing remains elevated compared to pre-COVID levels. However, the sales occurring are now looking to a commencement in at least 12 months’ time.”

HIA’s economics team will be closely following the approval data in coming months.

The Sunshine Coast patterns are being mirrored on the Gold Coast and Greater Brisbane, which have seen similar drops in activity during the start of 2022.

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