Developer exodus threatens Australia’s housing supply targets | Australian Broker News
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- Developer exodus threatens Australia’s housing supply targets
Profit margins squeezed as costs and delays mount
Australia’s housing supply crisis is set to worsen as developers struggle to remain profitable, according to Mark Greenberg (pictured), founder of non-bank lender Lambert Capital.
“The problem is that developers’ profit margins are extremely tight right now, because building costs and land acquisition costs have increased significantly since the pandemic,” Greenberg said. “To make matters worse, developers’ projects have been taking longer to get approved, built and titled, which has led to an increase in their holding costs and a further reduction in their profits.
“These conditions are close to the toughest I’ve seen during the 25 or so years I’ve been lending, and they’re driving a lot of mum-and-dad developers out of the game,” Greenberg said. “It’s now close to impossible to be, say, a dentist during the week and a property developer on the weekend, because you won’t have the scale or experience to build fast enough and cheap enough.”
Scale and supply chain control now essential
“In the current environment, it’s almost a case of no scale, no profit,” Greenberg said.
Developers are responding by starting their own building businesses, buying into established companies, or partnering with trusted project managers and builders.
“I’m also seeing some developers buying up different parts of the supply chain, like tiling or plastering businesses, to maximise control and efficiencies,” Greenberg said.
Government targets “pie-in-the-sky”
Greenberg believes the federal government’s goal of 1.2 million new homes by June 2029 is unrealistic.
“It’s pie-in-the-sky stuff,” he said. “There just aren’t enough developers and builders, because it’s become too hard to run a profitable business these days. So where are all these new homes meant to come from?”
Calls for planning reform
“If we’re ever going to fix this problem, we need to see all levels of government – federal, state, local – find a way to streamline the planning and building approval process,” Greenberg said. “They also need to get out of the way and stop making it so onerous for developers to get final sign-offs on projects.
“The number of hurdles you need to jump over to reach the starting line is ridiculous, and delays with authorities at the end are leading to a blowout in holding costs. Otherwise, we’re never going to see housing supply catch up with demand, and housing affordability will keep deteriorating.”
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