Residential - Boom or Bust

[Shareguy]

Good article on BD today from Cameron Bagrie

The hard landing

The challenge this time round is not the construction cycle itself, but managing costs and project delays, and staffing headaches, all of which eat into working capital.

Construction employment, according to Quarterly Employment Survey, has grown at close to double the rate of the volume of work completed in the past three years.

Construction margins took some hefty knocks during previous downturns, and producer price data from Statistics NZ shows early signs of history repeating.

A major threat to the construction sector is simply a continued push higher in interest rates. The more persistent demand – and the construction sector is showing all the hallmarks of continued strong demand with job ads still rising – the more the Reserve Bank will need to deliver on prospects of the official cash rate heading north of 4%.

Construction jobs on Seek rose 4% in May and 8% in the last three months.

Strong demand means bigger interest rate hits, at which point all bets are off. 

A bust is on offer. 

History shows builders scarper for Australia. Critical capacity is lost and the historical boom and bust playbook for the construction sector rolls on.

The oxymoron

After years of wanting to see more houses built, we are now in the strange position of needing to see bad news in the form of a material drop in building consents and high attrition rate on existing residential consents.

Both are necessary if there's to be any hope of achieving a soft landing, bringing demand back in line with supply.

More "good news" indicating an ongoing house building boom will continue pushing against capacity constraints and will up the ante on the bad news and hard landing endgame

[Mr Cashflow]

Some booms are followed by busts.  It is difficult to predict.

[arekaywhy]

I've been thinking about this for a while now, and considered a lot of opinion from all parts of the sector. 

It leads me back to looking at gubmint policy.  If they would just leave us alone, stop inflating the money supply, and repealed most of the legislation in place for regulating the sector, then the market will sort itself out.

[mfd]

Residential construction sentiment is down at levels below the GFC and covid crash, quite an incredible crash. Looks like the boom will soon be bust.

https://www.interest.co.nz/business/116935/collapse-residential-construction-sentiment-highlights-another-gloomy-anz-business

[winner (n)]

Residential construction sentiment is down at levels below the GFC and covid crash, quite an incredible crash. Looks like the boom will soon be bust.

https://www.interest.co.nz/business/116935/collapse-residential-construction-sentiment-highlights-another-gloomy-anz-business

They'll be giving gib board away in a couple of years ....esp when that big new plant comes on stream

[arekaywhy]

They'll be giving gib board away in a couple of years ....esp when that big new plant comes on stream

ach, totally should have put the kitchen reno on hold

[TGB]

I have just finished building 2x new stand alone townhouses for rentals. Ended up being reasonably ok in terms of costs but renting them out for the right money has been a challenge.

I have one rented now @ $750 a week, should have the other sorted soon. You'd think it would be straight forward, but I'm first time landlord so I don't have anything to compare it to.

https://www.myrent.co.nz/listings/PY398J

[Shareguy]

I have just finished building 2x new stand alone townhouses for rentals. Ended up being reasonably ok in terms of costs but renting them out for the right money has been a challenge.

I have one rented now @ $750 a week, should have the other sorted soon. You'd think it would be straight forward, but I'm first time landlord so I don't have anything to compare it to.

Tenants can only pay so much.  I have learnt over the years that aiming for top dollar often attracts the wrong type of tenant.  Better to have a lower price and attract a greater pool therefore increasing quality.  Good luck

[TGB]

Thanks for that, I did a bit of a review before listing them and got an appraisal from the biggest local firm.
I originally went for $800 but much more interest at $750.

Migrants starting to come in, many applicants have long lead times due to notice periods or moving regions. Those who are immediately available have often stated they are in transitional housing currently and MSD is willing to pay their rent but their income statements show it would leave them with nothing else.

On the boom bust topic, my valuer was saying many local developers here overcooked it during the past 2 years. Buying up land for too much money. Noone one is buying off the plans and many completed units are sitting empty as the rental market for 1/2/3 bed town houses must be completely saturated.

[Shareguy]

In my experience i have seen way unrealistic rents quoted by real estate firms. I have been in the game for a while and have found there is always plenty of tenants. Finding a good tenant is another storey.

We have not had any real issues in 15 years. Unfortunately with the new rental laws I don't take any risks these days and would rather have the property's empty than take people who don't stack up.  You are right not to entertain people in transitional housing. There are too many terrible storeys out there. It is too hard to get rid of bad tenants these days so you need to pick well.

[TGB]

Yup I agree with you there, would be really nice if they were bringing in rent but we aren't in a rush.

Have a few bites to work through, I'm pretty confident we are at the right price point. Just have to be patient for the right people.

[Shareguy]

The head of constructiion at Fletcher Building said house prices are stabilising about 10% down from their peak in December as buyers gain more confidence about the path of interest rates.

In a conference call for analysts on the company's results announcement, chief executive Ross Taylor described market sentiment as "a real positive for us".

"People are returning to the market."

[Shareguy]

Tony's latest

https://tonyalexander.lt.acemlna.com/Prod/link-tracker?redirectUrl=aHR0cHMlM0ElMkYlMkZ3d3cudG9ueWFsZXhhbmRlci5ueiUyRndwLWNvbnRlbnQlMkZ1cGxvYWRzJTJGVG9ueXMtVmlldy0xOC1BdWd1c3QtMjAyMi5wZGY=&sig=GLWrXi3hhFv8aeC6H7ST2gWhZAuo58jeYNz1fkU5FGjq&iat=1660783318&a=%7C%7C611496996%7C%7C&account=tonyalexander%2Eactivehosted%2Ecom&email=qcmwvq5abY8hz7kZxf7GH735hO7C%2FF3J%2FgQB9Uu3XAY%3D&s=05e99de56204b8dcf0eb95bd41d72547&i=177A186A1A1123

[snapiti]

interestings times we are in........I hear in many areas there is a lot more rental supply now.......could we be entering into a period of higher rental loan servicing costs(higher interest rates) and lower rents......why not we have just been through a period with lower loan servicing cost and rising rents

[mcdongle]

I am thinking we are entering a period where everything from the last 20 years is turned upside down.
For how long? that is the question.