Growth holding up but subdued year ahead
RISING BUILDING COSTS AND A TRADES SHORTFALL ISN’T DAMPENING DEMAND, AS AUSTRALIANS EMERGE FROM TWO YEARS OF LOCKDOWNS, DETERMINED TO CREATE THEIR DREAM HOME.
AFTER YEARS OF Covid-induced lockdowns, it seems Australians are having an architectural epiphany. What works — and doesn’t work — has never been more apparent and a renovation boom is underway. And while the desire to update and ameliorate is being met with ballooning building costs due to the pandemic and knock-on effects of supply issues, it’s doing little to dissuade those with luxury homes.
New research from NAB reveals one in two Australians believe it is becoming harder to renovate a property, and six in 10 say it’s become more expensive. Despite these challenges, one in three homeowners feel that now is a good time to renovate. Dean Pearson, head of behavioural and industry economics at NAB, says that while lockdowns have inspired people to transform their homes, Covid-19 is also directly responsible for the rising costs.
“The Covid-19 pandemic has coincided with a surge in renovation activity as many Australians were confronted with significant lifestyle changes, including spending more time living and working at home,” Pearson says. “Other factors, such as the HomeBuilder grant, rapidly rising house prices and people spending more time appreciating their local area and amenities, have also contributed to the growing desire and confidence to renovate.”
So what does this mean?
Covid-19 has impacted global supply chains, causing shortages of building materials, blowing out construction time frames and creating a trades shortfall. Labour analysis conducted by NAB in January revealed that tradespeople were among the most sought after workers in Australia, accounting for 35% of the country’s overall labour shortage.
Against this unique backdrop, NAB conducted a sentiment survey to understand Australians’ attitudes to home renovation. The data showed that around 14% of Australians were renovating a property during the final quarter of 2021. When asked if they believed it had become harder or easier to complete a renovation, 29% of renovators said it had become harder, while 19% said much harder. With ongoing demand for housing and builders passing on rising material costs, 61% of Australians said it had become more expensive to renovate and 23% signalled that it had become much more expensive.
The data showed that older Australians are more motivated to increase their home’s value, with 48% of those aged over 65, 45% of those aged 50 to 64, and 36% of those aged 30 to 49 seeking to add value to their asset. Confidence to reinvest in the family home, says Pearson, likely comes from the accumulated savings and increased equity Australians amassed throughout 2020 and 2021.
Combined capital city dwelling values rose 22.2% in the year to March, according to The data showed that older Australians are more motivated to increase their home’s value, with 48% of those aged over 65, 45% of those aged 50 to 64, and 36% of those aged 30 to 49 seeking to add value to their asset. Confidence to reinvest in the family home, says Pearson, likely comes from the accumulated savings and increased equity Australians amassed throughout 2020 and 2021. Combined capital city dwelling values rose 22.2% in the year to March, according to CoreLogic data, while the combined regions jumped 30.5%.
“I was surprised at how overwhelmingly positive people were about renovation as a means to increase the value of their property,” says Pearson. “It just reinforces how important property is as an asset for people and how comfortable they feel about investing in that asset — and actually getting that money back. Obviously, there’s an expectation there will be a significant profit, over and above the renovation investment.”
Luxury residential market
As for the luxury residential market, Pearson says not only is there a great appetite for renovation, homeowners are prepared to invest significant sums. “If you’ve got a premium home, then you need to match that with a high-quality renovation,” he says. “When you’re in a top luxury bracket, you need to put in exceptional kitchens and bathrooms. These homeowners know there’s an expectation from the future buyer of their property. Ultimately, I think another reason we’re seeing the actual cost of renovation going up is because people are doing much bigger more substantial renovations.”
Andrew Sahhar, of Kay & Burton South Yarra, says purchasers in the eight-digit buyer pool either want an immaculately renovated state-of-the-art turn-key home, or are likely to send in their designers and builders straight after settlement. “Some people pay a premium for a property that’s all done and they can move right into. Then there are some who buy a property and have it renovated just because they want it to be exactly to their taste. For other buyers, it’s like a personal project, something they actually enjoy doing.”
Even in the prestige market, Sahhar says, there are professional “flippers” (developers and individuals who purchase a home then immediately renovate and resell it). “They realise there are wealthy buyers who will pay a premium for a fully renovated home — the kind of buyers who don’t want the hassle of getting plans and permits, so will pay for the privilege of having someone else deal with the paperwork.”
Even as house prices and building costs increase, professional flippers are finding a way to turn a profit. “Obviously the margins are getting smaller now, but these developers specialise in beautiful boutique homes and they’ve been using the same trades for a long time,” says Sahhar. “Right now, there are houses that agents might have thought were worth $10 million, but might get $12 million because someone’s paid a premium for an incredible renovation. Buyers can literally just bring their furniture and clothing, and they don’t have the headache of building.”
Sahhar says high-net-worth individuals are seeking lifestyle features that make a home a haven. “Kitchens are one of the most popular rooms buyers want renovated, including second kitchens, sculleries or butler’s pantries. But having said that, I’ve sold properties with brand new kitchens where the buyers haven’t liked them and have ripped them right out. Often at this premium price point it comes down to personal taste, not the cost.”
Much of the work being done right now is to create those elements that wealthy homeowners found lacking in their properties during the lockdowns. “Homeowners are putting in pool houses or an area separate to the main house,” says Sahhar. “They want home offices and even additional study rooms for their children. Home theatres have become popular again, wine cellars are very sought after and, for those who like to collect cars, carving out space for basement car parking is also important.”
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