Beware the building boom
Australia is in the middle of a construction boom. Over the past six months, more than 100,000 new dwellings have been approved, taking the annual run rate to about 220,000 new dwellings. That’s the fastest pace of home construction in twenty years.
Yet peer a little closer into the data and it’s clear that there are two distinct construction markets in Australia: high rise apartments and freestanding houses.
Despite soaring property prices, detached housing construction has been flat or falling for a decade. Over the past two years that trend has reversed and detached housing construction is now slightly above the long term average. Most commentators expect above average construction to continue for years as the industry catches up to a decade of pent up demand.
That could certainly still happen but the second construction market could yet undermine the first. An unprecedented boom in apartment construction, particularly in Sydney and Melbourne, suggests past housing patterns have changed.
Twenty years ago, when we last saw activity at these levels, high rises made up just 10% of total construction in NSW: today it is 40%. In Victoria, high rise construction has risen from 5% of new dwellings to 25% over the same time. These are profound shifts in the way we live and are unlikely to be reversed.
This has important implications for the building and construction industry. Ten or twenty years ago, a building boom meant a bonanza for maker of bricks, tiles and pavers. Although the market is strong for such items, peak demand isn’t as strong as it was. High rise construction is less material intensive than detached housing. Businesses like Boral (ASX:BLD), Brickworks (ASX:BKW), CSR (ASX:CSR) and James Hardie (ASX:JHX) are benefiting from the boom but not as much as in the past.
Investors looking at aggregated construction data and making top down decisions about where to put their money need to be careful. There is a construction boom on today, but it’s not as lucrative as it once was.
To get more insights, stock research and BUY recommendations, take a 15 day free trial of Intelligent Investor’s Share Advisor now.
Frequently Asked Questions about this Article…
Australia is experiencing a construction boom with over 100,000 new dwellings approved in the past six months, leading to an annual rate of about 220,000 new homes. This is the fastest pace of home construction in twenty years, driven by a surge in high-rise apartment construction, particularly in Sydney and Melbourne.
The construction market in Australia has shifted significantly, with high-rise apartments now making up a larger portion of new dwellings. In New South Wales, high rises account for 40% of construction, up from 10% twenty years ago. In Victoria, the figure has risen from 5% to 25%.
Companies like Boral, Brickworks, CSR, and James Hardie are benefiting from the construction boom, but not as much as in the past. High-rise construction is less material-intensive than detached housing, which means demand for traditional building materials like bricks and tiles isn't as strong.
Investors should be cautious because, although there is a construction boom, it is not as lucrative as previous booms. The shift towards high-rise apartments, which require fewer traditional building materials, means that companies in this sector may not see the same level of benefit as before.
The shift towards high-rise apartment construction has profound implications for the building and construction industry. It changes the demand for materials and affects the profitability of companies that traditionally supplied materials for detached housing.
Yes, the demand for detached housing is expected to remain above average for years as the industry catches up with a decade of pent-up demand, despite the rise in high-rise apartment construction.
Investors can gain more insights into the construction industry by taking a 15-day free trial of Intelligent Investor’s Share Advisor, which offers stock research and BUY recommendations.
Currently, high-rise apartments make up 40% of new dwellings in New South Wales, a significant increase from 10% twenty years ago.
Call 1300 880 160
Start a chat
Schedule a call
