When you work in property, the one thing you learn early on is that it is cyclical by nature. There are good times and are there are challenging times. Unfortunately those challenging times have been with us now for near on three years and people are getting fatigued. Every time there appears to be some light at the end of the tunnel, government policy either local or abroad has everyone trimming their sails getting ready for the next storm…real or otherwise. We have to stop taking rumour as fact and jumping at shadows. It is very difficult to rebound when the collective conscience is on edge.
The last significant downturn occurred in mid 1985 and lasted approximately three years. In 2000 the introduction of the GST combined with the Tech Wreck dented confidence and created a degree of uncertainty about a new taxation system. This was shortly lived as the market bounced back after being in a five year period of below average performance. In many respects, there are some similarities between the GST period and where we currently find ourselves. Comparisons can also be made to the period surrounding 1987 and the stock market crash which saw the bottom of this building approval downturn. Having stated that, most people were not so heavily geared back then. This has changed the fundamentals of the market dynamics in ways which were not foreseen, however with hindsight, greater degrees of transparency and discovery it was obvious the eye was “off the ball.”
When you consider that the level of approvals are down, and typically not all approvals reach construction, the above graph is somewhat sobering. Representing less than 4.0% of market activity, the purchase of new dwellings whilst having not changed dramatically as a proportion, it has in volume. Herein lies the rub. The building industry continues to lose some of its long term capacity to the resource sector, which is after all a labour mobility issue which has helped many households stay above the bread line. The big problem that looms is a shortage of apprentices and young people that will be able to step up to the plate when the housing sector recovers…and it will recover and probably with a rush. Every recovery from a significant downturn has been equally steep in its upturn, making sure we have the skills to cope with this will be imperative to keeping a lid on affordability.
On that note, it is with some trepidation that a loophole in housing GST appears to be closing. Whilst the intention was clearly that a loophole in the taxation system should not exist for new houses in the first place, the introduction of draft legislation by Bill Shorten could not have come at a worse time for the industry. Not only that, if successful it will be retrospective back to January this year, meaning that many house builders may find their taxation bills significantly higher than was originally perceived. As many builders are currently sailing close to the wind, the potential damage to this stressed sector of the economy will be felt on a wide scale. Keeping in mind that for every house built, effectively seven jobs are created.
If the housing sector is to not only survive, but be placed in a position from which to grow from, change is needed on a broad scale. This should be approached with a whole of industry focus in a unified front between the UDIA, Property Council, Master Builders Assoc, Housing Industry Assoc and someone from the relevant state and federal treasury. Until everyone’s cards are laid on the table, the solution will continue to be pushed away like bobbing for apples in a bucket.