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A developer's take on Australia's housing issues

Stephen Hayes recently welcomed Andrew Whitson, Development CEO at Stockland, onto First Sentier’s Curious podcast. What follows is a lightly edited extract of their conversation on Australia’s housing market.

Stephen Hayes: Andrew, it's no secret the Australian housing market is immensely challenged. Coming in from the development side, what are some of the big issues you are seeing in bringing new stock to market?

Andrew Whitson: We are at a stage in the housing cycle where commencements are at more than a decade low, and there's some real challenges in bringing new stock to market.

Number one has been some of the regulatory complexity in getting new supply approved through multiple levels of government and multiple government agencies. It's never been more complex to get a planning approval today, and that's limiting the ability for some of the new supply to come to market.

Combined with that, construction costs have gone up, with double digit increases in consecutive years. That effectively means that feasibilities have been under a lot of pressure. A lot of projects that were on the drawing board have been unfeasible and developers won't start releasing stock in that sort of environment.

And then probably the third element that's attributed to it has been housing affordability. This is the ability of customers to afford new product and pay what is economic replacement value. And that's a number of elements – particularly access to finance. People's ability to afford has limited ability to pre-sell, which underpins the release of new stock to market.

SH: What would it take to reduce housing supply barriers? Let's talk to some of the challenges facing developers. To start, how do you navigate the state's planning and regulatory minefield?

AW: Credit where credit is due, all state governments that we deal with now have really recognised that housing affordability is a wicked problem.

They're leaning into and looking at new ways to bring more supply to market because they do recognise the most affordable way to address it, and the biggest lever they've got, is on the supply side.

One example here in New South Wales, the state government have recently established the Housing Delivery Authority. And that is where you can make an application to the state, that will be assessed for eligibility within a four-week period. If deemed appropriate, then the state government make a commitment to make a determination within nine months.

Nine months for a determination on a development approval or rezoning is pretty quick. So, you've seen a number of applications go through that process that was only introduced in January this year. That's a real step forward.

SH: How are you seeing timeframes at the local council and state government levels in getting development approvals through? Have they shortened?

AW: In some local government areas, we've seen a real improvement and you're seeing a number of state governments publishing league tables on development approval timeframes and holding councils to account to drive assessments forward.

In other areas where there's a level of complexity, it can be more challenging and you get this elongation of timeframes. So it’s definitely an area that with high quality development applications that proactively address the issues upfront, we think we can drive some improvement.

Self-certification is another area. Developers like Stockland look to deliver high quality communities that are complying with local planning instruments. We think more self-certification should be available to take some of the backlog and pressure and workload from local government.

SH: Do you think examples like in New South Wales, where the state government has taken initiatives to privatise certification is a step forward?

AW: For some of the simplistic, some of the complying and more simple developments? Absolutely. Like all things, there's variability within self-certification and sometimes it can be open to not working as well and we've seen some examples here in New South Wales of that occurring as well. It’s definitely an appropriate measure if implemented well and regulated appropriately.

SH: With excessive inflation over the past five years, Andrew, it's put major pressure on development costs. Last year alone, 2,800 builders went insolvent. Can you talk to some of these challenges?

AW: Coming out of COVID, it’s well documented that real supply chain disruption – and that's getting access to plant materials, equipment, and then we had together with that a real labour shortage.

From what we are seeing with the builders that we deal with, we are past the worst of it. Most builders have now reset their books so that they've got profitable projects in their forward pipeline.

And we've seen a real bifurcation, particularly in the home builder space. You've got now 5-6 very well capitalised home builders and we've seen a lot of, particularly Japanese money, move into that space. They're the bigger builders that are driving forward with both increasing volumes of delivery but also innovating in that space to drive down the delivery costs.

I think it's an area where we need to continue to focus. Productivity is still not back to levels that we saw pre-COVID. In our case to deliver a stage, we used to deliver it in 24-26 weeks. It's still taking us around 30 weeks to deliver it, so we've lost 10-20% productivity and that's a combination I think of increased regulation, but also just losing some of the experience and capability from the construction sector.

SH: I suppose it's an interesting little-known trend, isn't it, to have these large Japanese housing builders enter into Australia and I think that they own four of the five largest housing builders in Australia.

AW: Yeah, they do. They have come in and I think been very positive for the home construction sector, injecting some significant capital into the home builders.

The Japanese are well known for doing modular, so we're starting to see some real advancements in panelised and modular construction moving into the Australian home building sector. We've built houses the same way for the past 100 years – stick built. Getting more technology into home construction I think is good for the sector, but it's also good for the quality of the homes that are being delivered.

SH: Let's talk to demand. Where are you seeing any green shoots?

AW: The market outside of Victoria we would describe as good to strong from a demand perspective.

The strongest market that we've seen nationally in the past 24 months has been southeast Queensland and that's really been on the back of strong interstate migration, which started to really gather pace post COVID and has continued. And together with that, you're seeing economic growth up there in the lead up to the 2032 Olympics.

They’ve got a big infrastructure spend that's rolling out and it had a real affordability advantage. Part of that's been eroded over the last two years, but southeast Queensland's performed very strongly. We've seen double digit price growth over the last two years and still seeing demand outstrip supply in that market.

The second market that's been strong has been Western Australia, the Perth market in particular. That market has passed its peak. We're seeing some moderation in demand there but would still describe it as strong.

Going back 12-18 months, almost 40% of our enquiries were from east coast investors. That's pulled back and it's now being driven very much by local buyers, local first home buyers, local investors into that market. But once again, strong double digit price growth over the last two years has eroded some of that affordability and reduced that level of demand, but I still would describe it as a strong market.

New South Wales where we are, this market is chronically unaffordable. We only sell 11% of our product to first home buyers versus 50% in the other states that I mentioned. But this market continues to trade consistently due to a lack of supply and it's very much an asset transfer. So people will sell a home, upgrading, downsizing and buying into our new communities.

The market that's lagged the rest of the country has been the Victorian market. You know, it’s well documented, some of the economic and tax headwinds that that market has faced. We are starting to see some improvement in that market.

It now sits and screens as the most affordable capital city market in the country, more affordable median house price now sitting below Adelaide, substantially below Sydney, and below Brisbane and Perth.

We've recently seen a reversion in net interstate migration. It's turned positive for the first time this decade in the last two quarters. So, people are starting to recognise that affordability is returning to Victoria. Resale listings have started to come back and cancellation rates in our communities that were well above 20% are now back to about 15%.

People are seeing valuations hold up better and settling homes and new purchases better. So, we're seeing a gradual improvement in that market, but still, volumes are at very low levels and we would look to see a step change as this market improves.

 

This was a lightly edited extract from Stephen Hayes’ recent conversation with Andrew Whitson on First Sentier’s podcast, Curious. You can listen to the full 30 minute conversation on Australia’s housing market here.

First Sentier Investors is a sponsor of Firstlinks. This article is general information and does not consider the circumstances of any investor.

For more articles and papers from First Sentier Investors, please click here.

 

10 Comments
AlanB
July 07, 2025

So what do we tell our sons and daughters aspiring to buy their first home?
How do young first home buyers on average salaries get into home ownership?
It seems parental help is now essential whereas once it wasn't. Another reason home prices have risen is because more parents are tipping in funds. A vicious cycle of parents helping their children with a home purchase, which pushes up demand, which pushes up prices, which pushes up the need for more parental help.
Another thing adding to building cost and unaffordability now, compared to my first home, is additional and more expensive inside and outside inclusions. Both demand driven and mandated by building requirements and regulations.

Dudley
July 07, 2025

"A vicious cycle of parents helping their children with a home purchase, which pushes up demand, which pushes up prices, which pushes up the need for more parental help."

Instead of 'The Bank of Mum&Dad' or 'The Bank of GrandMum&GrandDad' there is:
'The Bunk of Dad&Mum'.

https://www.firstlinks.com.au/australian-house-prices-close-in-on-world-record

"How do young first home buyers on average salaries get into home ownership?"
By saving 80% to 90% of two average wages, to buy home in 4 years with CASH, no mort-gage, no hand out, starting with $0; without wrecking Mum's, Dad's, GrandMum's or GrandDad's finances.

Breaks the multi-generational mort-gage debt cycle.

The timing and physical difficulty to solve for many is Dad&Mum having spare bunks when sprogs start to earn average wages.

AlanB
July 08, 2025

Ok lets do some rough maths on that.
Say the median salary for a 25 year old is $80,000. After tax, $56,000.
Assuming the couple is living rent free with M&D and saving 80% each = $45,000x2 = $90,000 savings py.
Medium cost of a smallish 3 brm family size house in outer suburb (assume not Sydney) = $850,000 +costs.
So that young couple will be living with M&D for about 10 years to get a mortgage free first home.
Unless M&D (to preserve everyones sanity) can get them out of the parental nest by contributing a substantial deposit.

Dudley
July 08, 2025

"Ok lets do some rough maths on that.":

"young first home buyers on average salaries":
'The average full-time wage in Australia is around $102,742 per year', tax $23,665.44, net $79,076.56

I'll copy the arithmetic formula here from:
https://www.firstlinks.com.au/australian-house-prices-close-in-on-world-record
and, instead of ratio of home price to single average wage, which would allow comparison using wages other than the exact average, use stated average net wage of $79,076.56;

Spreadsheet formula for calculating time to save price of home - without mortgage - with growing price and income.

Key variable / parameter is Time [nper] : 3.86 y

Home price:
growth 6% / y, inflation 0% (for nominal rate), growing for 3.86 y, initial price / single average disposable income 6, single average after tax wage $79,076.56 / y:
= FV((1 + 6%) / (1 + 0%) - 1, 3.86, 0, -6 * 1 * 79076.56)
= $594,127.51 after 3.86 y.

Savings:
Net nominal savings interest rate 3.5% / y, inflation 0% (for nominal rate), saving for 3.86 y, disposable income growth rate 4% / y, couple disposable income saving rate 2 * 90% * 79,076.56 / y:
= FV((1 + 3.5%) / (1 + 0%) - 1, 3.86, 0, PV((1 + 4%) / (1 + 0%) - 1, 3.86, 2 * 90% * 79076.56, 0, 1))
= $593,753.91 after 3.86 y.

Vary Time until Home price = Savings (difference = 0).

Change key variable / parameter Time manually or using 'Solver' or 'Goal Seek' which will give a more precise time of:
= 3.862912285 y.

No "Bunk of Dad&Mum", seek free / low cost rent. Rent or mortgage are drags that severely slow savings.

"Medium cost of a smallish 3 brm family size house in outer suburb (assume not Sydney) = $850,000 +costs."

Assume Sydney and ambush a cheap 2 - 3 bedroom flat as a 'starter' home', ownership of which would eliminate rent / mort-gage and allow the diligent savers to continue to accumulate capital at a clip that slow savers won't understand or equal.

"preserve everyones sanity":

A wing or cabin or tiny home can help with that. Otherwise the road outside awaits.

Peter Wurfel
July 06, 2025

If only developers chose to engage far earlier in the process with all stakeholders then all the relevant issues could be identified and mitigated. But they don’t, and we are left with the consequences.

Bruce Bennett
July 05, 2025

Economics 101 says prices will rise when demand exceeds supply. The issue is not limited to housing in Australia but to asset classes worldwide. Singapore is the latest country to restrict foreigners owning property.

The old supply/demand curve may need reworking to account for massive money printing by governments. How much of housing’s unaffordability is due to excessive government spending or is it only demand driven migration?

Whether it’s property, gold or equities, these assets are at record highs but the underlying earnings (or value) and demand have not changed much.

Can someone come up with a better supply/demand curve that includes the ongoing fall in the price of money?

Steve
July 06, 2025

A number of Singaporean investors are buying houses here, as the UK, Canada & Australia offer freehold title, whereas most of Singapore is stricken with the dreaded 99-year lease, which in effect becomes a 100% death duty. Any self-respecting family wanting to build a family wealth legacy would be buying to invest here, and not Singapore.

C
July 03, 2025

All those words and yet not one utterance of the elephant in the room.. immigration.

Developers just love uncontrolled immigration, as long as their bank balance goes up, to hell with the long term social and economic impacts it causes.

Peter C
July 03, 2025

Chris S : Hear, hear.

Chris S
July 03, 2025

It never fails to amaze me that developers have such cognitive dissonance when it comes to planning and building controls. Developers continually bleat about "red tape" and how it needs to be removed. The presence of so many controls has been caused directly by developers and builders doing the wrong thing - there are so many examples of shoddy, fraudulent and below standard housing that has caused this situation.

Perhaps businesses like Stockland need to look in their own front yard first, instead of instinctively blaming governments and councils for time-consuming planning processes. If Stockland et al cleaned up their acts, then these controls would not be so necessary, and everyone can have much more faith and trust in developers and builders.

 

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