Event: Denita Wawn interview with Thomas Oriti, ABC NewsRadio
Date: Thursday, 18 May 2023, 9.05am AEST
Speakers: Thomas Oriti, host ABC NewsRadio; Denita Wawn, CEO Master Builders Australia
Topics: housing supply, inflation, labour market shortages, insolvencies
Thomas Oriti, host ABC NewsRadio: A lot of talk about the solution to the housing crisis at the moment and one of the potential solutions we’ve been discussing is supply. We simply need to build more homes. But is it as simple as that? There’s analysis out from KPMG. It’s found tens of thousands of approved housing construction projects in Sydney and Melbourne have been put on hold due to a 30 per cent surge in construction costs and lacklustre property prices. Meanwhile, we’ve seen yet another building company go into liquidation, I should note as well. This one in Tasmania, Multi-Res. The latest to fall. Denita Wawn is the head of Master Builders Australia who joins us now. Denita, good morning. Thank you for your time.
Denita Wawn, CEO Master Builders Australia: Good morning Tom.
Thomas: As it stands, when we talk about supply, right. Is the construction industry today in a position to build all the homes needed to solve the housing crisis?
Denita: Well certainly we are pretty busy at the moment and supply of materials and supply of labour is hard. But as building activity winds down from the peaks of building contracts 18 months to two years ago we will well and truly be in the position to do so next year onwards. We’re forecasting a significant decline in building approvals which will mean that we’ve got effectively a 12 to 18 month window to get the industry in the right place to build the houses we know we need. We keep on talking about needing 200,000 homes a year built around the country to meet demand and we’re going to fall well short of that next year. So, the key crunch time is between now and the end of 2024 to get the industry in the right position to be able to build to meet those housing needs of the future.
Thomas: How do you do that though? What needs to be done to get it there?
Denita: Well first and foremost we need to get inflation down. It’s quite simple. We are seeing, as you said, 20-30 per cent increase in costs for building that is simply making it too hard. You combine that with escalating interest rates that are trying to get those inflation costs down and that’s also meant that people aren’t willing to put cash up. Cash is at the moment too expensive in terms of their borrowing. So we need a stable economy to get the metrics right. For people to feel confident enough in that they can invest in housing in this country. It’s as simple as that.
Thomas: There’s a lot I want to discuss with you today but this KPMG analysis that found tens of thousands of dwellings that were approved but not yet commenced. I mean demand is certainly a problem right now so why are these builds on hold? What’s happening there?
Denita: Well we’ve got two issues really happening simultaneously. One is a here-and-now issue around the inflationary pressures on the cost of building. We’ve got significant shortages of labour that means that something that normally takes nine months to build is taking at least 12 months to build. That then adds on costs. And then, of course, we’ve got the interest rates as well. The stabilisation of the economy is critical. But that should be seen in conjunction with systemic decades-long supply constraints around the country that has been the responsibility predominantly of state and territory and local governments not the federal government in getting the supply levers right. So that is about planning, it’s about zoning, it’s about developer charges and it’s also about land release. And we have not got that right for decades and it’s critical that we start getting that right.
Thomas: In terms of those levers we had Sussan Ley on about half an hour ago, the Deputy Opposition Leader and I was asking her about it. She pointed out energy policy as well. That needs to be added into the mix. It needs to be addressed in keeping the cost of supplies down. Like bricks is one of the examples that she made. Do you agree with that? In terms of how we can keep those construction costs down?
Denita: Anything that we are doing around net zero to a built environment that we support has to be seen in the context of is it going to be a cost imposition to building continuing. So, we’ve seen for example significant changes to the building code over the last 12 months. Changes that we’ve supported but what we haven’t supported is the really quick turnaround introduction of those changes that are increasing costs of building and that includes 7-star mandatory, it includes accessible housing and the like. Some states have not put in appropriate transition arrangements which means it jacks up the price even further by 10,000 to 20,000 per home. So, regulators have to be smarter and work collectively to resolve some of these issues and do it in an orderly fashion. We’ve commended the federal government in their Housing Accord with the state, territory and local governments. But there’s been a lot of talk but not much action. And we’ve really got to get these parameters right.
Thomas: Before I let you go Denita. We’ve heard about another collapse of the construction firm. This time in Tasmania, Multi-Res. We’re hearing that homes half-built, contractors owed tens of thousands of dollars. Just broadly speaking though, what does this say about the state of the industry right now?
Denita: Well we’ve been saying for quite some time that unfortunately the industry is in a fragile situation where we are building at a loss in many instances at the moment because we are stuck with fixed-price contracts with no escalation clauses which has meant that the builder and the builder alone has been covering these significant rises in housing costs. 20-30 per cent plus dealing with labour shortages and they are therefore under huge cashflow pressures. And when you combine that with no forward contracts and significant decline in that demand that’s really put massive pressure on. So it’s reinvigorated the discussions around how best to ensure that we’ve got appropriate risk-sharing between the entire building supply chain. To ensure that we don’t have this happen. So it is disappointing for the clients, the subcontractors and of course the builders themselves that we are finding ourselves in this situation. Again, it is a structural problem that we need to address.
Thomas: Okay, Denita Wawn, thank you very much for joining us. Appreciate your time.
Denita: Pleasure, thanks Tom.
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