Dear reader,

We kept saying over and over again that the weakness of new supply, associated with strong immigration, was at the origin of the soaring property prices.

A 2016 report by Andrew Bolt sums it up nicely:

‘Malcolm Turnbull: “It is very clear what is the cause [of unaffordable housing]: we just haven’t built enough housing. You fail to meet demand year after year and you suffer the consequences ”.

‘Lock: “No. The real problem isn’t that there aren’t enough houses. It’s that every year more people want one. The real problem is the immigration.

‘“For more than a decade now, we have been welcoming immigrants en masse …[it’s] historically high. These are all people who need housing to rent or buy.‘

Now we live on a prison island.

No one is allowed in, no one is allowed to go out. Zero immigration.

The government’s HomeBuilder program has sparked a construction mega boom. There is an abundance of new stock.

Yet we still have rapidly rising prices.

Go figure it out.

The participation rate in the federal government’s HomeBuilder program was more than four times higher than expected.

The government has received more than 99,000 requests to build a new house through the program, as well as some 22,000 requests to undertake renovations on an existing house.

Despite this, the construction industry is now facing a bottleneck.

First, there are stories of large construction companies approaching companies on rival sites offering bonuses and other incentives to try to attract them and cover a shortage of workers.

I am told that trades like concrete workers and masons are in high demand. Some have booked until 2022.

Combine this with the rapid inflation of building materials.

The price paid per brick has gone from less than $ 1 at the end of last year to $ 2.50 or more.

Supply chain disruptions for construction equipment, building materials and skilled labor stem from delays in production and shipping from China, the United States and Europe.

If you want to renovate, you face a cost increase of at least 10-15%.

This puts an end to various construction projects across Australia.

Lumber prices hit record highs earlier this year, soaring to 380%.

They have come down somewhat since then, but shortages are still keeping prices high.

It is exacerbated by national wood supplies destroyed by the 8.5 million hectares of forest burned during the 2019/20 bush fires.

On the ground, of the 99,000 families who applied for the grant to build their house, 9,800 (10%) currently have no idea when construction will be completed.

The graph below shows the difference between residential projects started and completed quarterly.

You can see the dwindling capacity of construction companies during the last boom:

The other issue here is that suburban land prices over the past year have been hiked by homebuyers – not developers.

This means that there is no profit for small developers who wish to subdivide land – the prices are too high to make a profit.

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The projects do not start; others go bankrupt.

Additionally, the shortage of building materials and rising prices are accelerating a trend that could disrupt the next real estate cycle (after the 2027/8 downturn).

I’m talking about 3D printing, a practice that often uses recyclable materials.

In 2018, CNN’s website asked the question:

‘Will the world’s next mega-city drip from a 3D printer?‘

There wasn’t much of a rush to rush into new technology before COVID. A bit like the Work at home culture.

But now it is increasingly seen as a viable solution to a supply crisis, and projects using technology are popping up everywhere.

In Tempe, Arizona, for example, a company called Habitat for Humanity began building the first 3D printed homes in the United States.

We’re talking about a 1,700 square foot, three bedroom, two bathroom townhouse:

In southeastern British Columbia, Canada, the Fibonacci House – a tiny concrete spiral house – isn’t just the very first 3D printed home in Canada; it now enjoys an added superlative as the very first 3D printed property to be listed on Airbnb.

Direction Amsterdam, and a few weeks ago, we had the inauguration of the first 3D printed bridge in the world:

The 12-meter, 3D-printed pedestrian bridge spans the Oudezijds Achterburgwal canal in Amsterdam’s red light district.

He used 4,500 kilograms of stainless steel – 3D printed by robots.

Efficiency is the key here; structures use less materials.

There is a significant weight reduction in the materials used, the parts are made on land and this is considered to be more “environmentally friendly”.

How much does the 3D printing of a house cost?

Aside from the printer, which can cost anywhere from $ 180,000 to $ 1 million, the cost of building a 3D printed house can be as low as $ 4,000 for the structure (i.e. base, walls, roof and sometimes wiring).

Or for a larger, more complex structure, 3D printed houses can cost anywhere from $ 10,000 to $ 100,000.

Considering that it currently costs around $ 350,000 for a very basic, similarly styled property in Australia, that’s pretty impressive!

There are a few companies preparing to do this in Australia.

One example is Melbourne start-up SLIK Build.

‘Imagine building your house for less than $ 100 per square meter,‘, says Tom Macrokanis (founder of SLIK Build).

‘You go to the machine rental factory, get your 3D printer, go to your block, set it up on the slab, the concrete trucks start to arrive, you turn on the printer and you sit down and look at your house almost to grow. floor.‘

Of course, what no one is telling you is the effect this has on land prices.

Obviously, the less expensive to build, the more money there is available to raise the price of land.

The land always takes the winnings!

This could be very inflationary for future cycles…

That is, however, unless the outward migration that we are now seeing continues! To move more and more people out of urban areas.

This is what could really disrupt the next real estate cycle.

Yet with the mega new housing boom, Yarra Capital’s Tim Toohey says it will lead to an oversupply of new housing by 2023.

‘[Toohey said] Historic building approval levels for free-standing homes, coupled with the “unprecedented” decline in population growth – in large part due to border closures – would create the largest overbuilding of new homes since 2008.

‘“Going into Covid-19, we had a little shortage, but it will turn into a significant oversupply,” Mr. Toohey said.

‘“The penny hasn’t gone down, but when it does, it will lower house prices. “‘

The only thing to compensate for this would be a massive increase in immigration. And under the current conditions, who knows when that would happen.

I can’t imagine many wanting to rush here with state borders closed, vaccine passports mandatory, and lockdowns promised to continue indefinitely.

I wouldn’t mind leaving!

However, these trends are unlikely to affect the inner and middle suburbs of capital cities and large regional cities.

Most of the new housing is located in new areas.

Another reason why – if you are in the market to buy – you should definitely avoid these regions (new domains) if you are looking to profit over the next few years.

Truly,

Catherine Cashmore,
For Silver morning

PS: Our Money Morning post is a great place to start your investing journey. We are talking about the megatrends that drive the most innovative actions of ASX. Know everything here