Construction crunch
I noted in a previous post how construction insolvencies are now at the highest level in a decade, with around 2,200 insolvencies in the 2023 financial year.
These business failures included 930 construction companies in New South Wales, 605 in Victoria, and 345 in Queensland.
There have been fewer than 176,000 dwellings approved over the past year, a figure which is now approaching decade lows.
As at the end of March 2023 there were still just over 240,000 dwellings under construction - representing a large supply pipeline - but with delays and backlogs being reported all over the place.
Not only are many construction firms going under due to cost pressures, many approved projects are now being shelved, mothballed, sold off, or scrapped outright.
And with population growth running at nearly 700,000 per annum there's a looming apartment shortage in the major capital cities.
It was reported over the past week that both construction costs and building insurance costs for units have increased permanently by over 40 per cent since the pandemic, with no signs of prices easing.
SQM's asking price index shows that nationally asking prices for units have increased by around 30 per cent since the beginning of 2020, from $385,000 to $515,000.
Source: SQM Research
However, this was largely a regional Australia phenomenon, with capital city unit asking prices only around 10 per cent higher over that time, rising from $575,000 to $640,000, as consumers temporarily shunned density and rushed outwards, while the international borders were also shut, stymying immigration.
Construction activity in the residential sector is thus set to fall.
And logically it will likely take a ~30 per cent increase in unit prices in the capital cities to get developers interested again.
