Event: Denita Wawn interview with Andrew Geoghegan, Ausbiz
Date: Monday 1 May 2023, 2.00pm AEST
Speakers: Andrew Geoghegan, host Ausbiz; Denita Wawn, CEO Master Builders Australia
Topics: housing supply, National Cabinet, labour market, migration, inflation, interest rates
Andrew Geoghegan, host Ausbiz: Let’s get some greater detail. Denita Wawn joining us. She is the chief executive from Master Builders Australia. Denita, great to catch up with you. Alright, tell us a little more on what you’ve heard from the federal government and what sort of encouragement you are seeing here.
Denita Wawn, CEO Master Builders Australia: Well, I think the National Cabinet was interesting on Friday, it reconfirmed the Housing Accord document signed between three levels of government last year. Supply is the key. We have a housing crisis here. We do not have enough homes for all Australians and when you look at the population growth that is being forecast, that will get worse if we are not building enough homes to meet the forecast population. So, the National Cabinet’s focus on supply was really positive, equally their decision on making more flexible the build-to-rent arrangements to facilitate that area along with focusing on social and affordable housing was equally welcomed. So good to seeing housing on the National Cabinet agenda and now the proof is in the pudding in terms of action.
Andrew: Yeah, a lot of this of course addressing I guess the longer term needs rather than the short term. Just in regard to that longer term outlook there, the key there as far as encouraging investors back to the market to actually build those homes and units, what are you seeing there? That’s obviously a benefit given where you are operating.
Denita: Well, we know that there is particularly a rental crisis and that it can’t be resolved overnight. We need to ensure that we are maximising all private investment in the rental market from institutional investors such as superannuation funds right through to the mum and dad investors. And as such, the announcements on Friday that encourages greater investment in build-to-rent by the institutional investors is really focused heavily on the capital cities. But we cannot ignore the mum and dad investors. They have been the backbone of the rental market for decades and that’s why it’s really critical that we maintain capital gains tax breaks, the negative gearing because we know that’s what facilitates investment in the market. We are now concerned that some of this focus on renter outcomes may deter people from investment. But we’ve got to get that balance right as well.
Andrew: No doubt Denita, they’ve proven to be very attractive yields for investors and those already in the market at the moment. But of course, the draw back being the cost of money at the moment given how rapidly interest rates have risen. So, what do we need to see to draw as investors back into the market? Will it only come once we start to see interest rate cuts do you believe?
Denita: Yes, absolutely. I think we need to see interest rate cuts or at least a stabilisation of interest rates. We’ve heard that there could be potentially further increases before we start seeing a stabilisation and decline. Investors are being very wary, and they are also very wary of the high inflation that we’ve got when it comes to building new investment properties as well. We’re seeing 20-30 per cent to the cost of building in this country and then of course on top of it, significant delays because we’ve got labour shortages. So as a consequence, all of those things have exacerbated a decline in investments into rental properties. We need to see a decline in interest rates, a decline in inflation before we see a large return by those investors.
Andrew: And Denita, of course, along with those rising interest rates with some building costs rise as well as inflation has gone up and we keep hearing week after week of so many builders going to the wall. Is that likely to continue? Do you think at least in the short term?
Denita: Well Master Builders has forecast that we were going to see the worst of the insolvencies between March and September of this year. Unfortunately, that has occurred. So, there is likely to be more. What we are seeing is the combination of fixed-price contracts signed in around 2020/21 well and truly before inflation started biting. Those costs have escalated significantly to the extent we’re seeing a building boom, but it is a profitless building boom. People are either likely to break even or building at a loss across the country. And as a consequence, that’s having a massive impact on cashflow. So, we’re hoping to see the end of that by the end of the year.
Andrew: And Denita, we talk about the affordability or lack of affordability in the current market and that rental crisis. So, what is being done then to address affordable accommodation and social housing?
Denita: Well, the government has the Housing Australia Future Fund before parliament that we would like to see the coalition and crossbenchers support and get passed in the next sittings of government. That sets up the structure of Housing Australia and the Future Fund to ensure that we have long-term commitment by the federal government in terms of social and affordable housing. But we also know that there needs to be more around the supply levers. A large number of institutional investors are very keen to invest but they know that we need flexibility and planning to look at mixed used developments and also the issue around developer charges. So, while the structure of the HAFF is really important, the commitment by the federal government with the state and territory governments and local government last week was critical to look at how we can look at more medium to high density in our cities whether they are capital cities or otherwise to ensure that we can meet those social and affordable housing needs at the right price.
Andrew: Given the supply crisis the sector is facing at the moment; do you have concerns about the current level of immigration?
Denita: Well, we’re in a catch-22 situation Andrew unfortunately in that we are screaming out for more workers, skilled workers. Master Builders has estimated that we need nearly 500,000 new entrants into the building and construction industry by the end of 2026. That is not just going to come from the domestic market. We also need people coming in from international places as well. So, we need people in this country to fill the job vacancies that we and other industries have but that will also put more pressure on housing. So, we’ve got to get the balance right in terms of the timing of people coming into the country. But population squeeze is not answer, population growth is the solution of resolving some of the productivity issues that we are experiencing at the moment.
Andrew: Denita, thanks so much for joining us from Master Builders Australia.
Denita: Thank you.
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