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Fringe benefits: Home demand in outer Australian cities prolongs building boom

EconomyNov 14, 2017 10:30PM ET
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© Reuters. A promotional sign is displayed at a new housing development in the western Sydney suburb of Oran Park in Australia

By Tom Westbrook

SYDNEY (Reuters) - On the edges of Sydney, where Australia's biggest city is sprawling across paddocks and market gardens, demand for new homes is running harder than tradesmen can lay bricks.

As home prices have soared in established suburbs – values have doubled in Sydney since 2008 and nearly so in Melbourne – buyers seeking the "Australian dream" of a free-standing home and yard have flocked to the fringes where land is cheaper.

"It's where we could afford," said Sandeep Hehar, 28, who queued overnight with her husband to secure a plot of land in Oran Park, a new outer-Sydney suburb rising on the site of an old motor racing circuit where she hopes to build a 4-bedroom home and start a family.

The construction rush driven by more people moving to the outer suburbs has helped reverse a downward trend in building approvals. House approvals touched an 18-month high of 9,929 in September, unexpectedly prolonging a boom many thought was winding down.

This frenetic activity has created a labor shortage in the industry.

"There aren't enough bricklayers to keep up, so what builders have started doing is actually looking for other products to use rather than brick," James Logue, housing manager at Fairmont Homes, a family-owned home builder based on Sydney's southwestern fringe told Reuters.

Much larger aerated concrete panels, sold by CSR Ltd (AX:CSR) under the trade name Hebel, are a common substitute, as they can be fitted to timber frames and completed much faster than building a wall from brick, he said.

"Pretty much every builder here is just flat out, crazy busy."

Demand from buyers such as Hehar propelled Sydney's median residential lot land values to a record high of A$470,000 in October.

At the same time, the extra supply of new homes has tempered once red-hot price growth to the relief of policy makers worried about a housing-bubble bust.


The roaring construction of new homes, however, is putting a floor under prices and is supporting the economy by stoking demand and jobs in the building industry.

"I think most people, including us, underestimated it," said Jack Hoffman, General Manager at Satterley, Australia's largest privately-owned land developer, in Victoria state, where approvals to build new private homes hit a seven-year high in September.

"The population growth took people by surprise and that's a real driver...we've got strong levels of demand every time we're releasing blocks of land."

Forward-looking data promises even more life in the cycle yet.

Borrowing to buy finished new homes hit a 38-year peak in September. The monthly rate of building loan creation is also cantering at 6,400 – harking back to the boom-time borrowing rates of three years ago.

Private-home construction approvals rose for a seventh straight month in September, enough to turn back a downtrend in overall approvals, as some of the country's around 230,000 annual migrants built homes for themselves.

To be sure, overall construction activity is below the heights it scaled during the boom's 2016 peak, and many economists say the current building surge should stabilize over time.

But small-time builders' demand for locally-made supplies like bricks, tiles and wood frames is moving the dial for material-makers such as Brickworks Ltd (AX:BKW), Boral Ltd (AX:BLD) and James Hardie Industries (AX:JHX), and that's drawing investors.


Fund manager Jason Beddow, chief executive of A$5.2 billion fund Argo Investments Ltd (AX:ARG), owns stakes in cement-maker Adelaide Brighton Ltd (AX:ABC) and paint-producer DuluxGroup Ltd (AX:DLX) to gain exposure to the home building sector.

"If you're not buying a new house you're renovating a house, so, you know if you're supplying into housing - you'd expect there to be some increased activity."

Indeed, houses built in the last big house-building boom in the 1980s are getting renovated now.

Brickworks boasted of a strong order book on Australia's populous east-coast in September, as did cement-maker Adelaide Brighton in October. Shares in both have gained steadily since, while Dulux stock jumped to an all-time high on Wednesday after it offered a rosy 2018 outlook.

Boral shares have traded at 10-year highs since it made a similar forecast earlier in the month, and rival CSR is expanding the factory where it makes the brick-alternative Hebel, thanks to strong sales.

For carpenter Ryan Crocker the blocks have built him a four-bedroom home in Oran Park.

"It's booming out here, and I think our house might go up in value," Crocker said, of the new house boasting a yard and a pool that he moved in to recently with his wife and daughter.

"Life's good, mate."

(This story corrects typographical error in headline.)

Fringe benefits: Home demand in outer Australian cities prolongs building boom

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