AD SPACE HERE

Rise of the Mega Builder: How Housing Crisis Was Cooked Up

Small and medium-sized builders have been superseded by supersized contractors who now manipulate supply chains to favour their business models at the expense of the greater good of the housing market.


Mon 27 May 24

SHARE

Australia has manufactured its own housing crisis, according to Roy Boydell, the founder and director of Ecohus, who said most developed countries are now in the full throes of a crisis, which will only get worse.

“This has not happened by chance; it is the inevitable outcome of how we provide housing in the modern free-market economy,” Mr Boydell wrote in a Fifth Estate Spinifex contribution yesterday. And despite high levels of political and media attention, “the problems are mostly misdiagnosed, which means the solutions are misguided, providing band-aid responses to individual problems but doing little if anything to correct the underlying issues of the system as a whole.”

“Try this: if Australians lived the same way they did in the 1950s (in houses of about 100 square metres), the current housing stock could accommodate an additional 30 million people, more than double the current population of 26.7 million.”

Roy Boydell, founder and director of Ecohus, in the Fifth Estate.
Housing is getting bigger and more expensive, while households are getting smaller and smaller. Footage courtesy of @stewarthicks.
The emergence of the housebuilding economy

As reported by Wood Central last year, global governments have “zero chance” of meeting ambitious housing targets without significant investment in modular and prefabrication construction – with the NSW government eying prefabrication and offsite construction to close its 377,000 housing gap.

And it is this housebuilding economy—with its complex mix of symptoms, including planning delays, supply chain constraints, and lack of affordability—that has “cooked up” a crisis.

According to Dallas Rogers, Associate Professor and Head of Urban Discipline at the University of Sydney, and Emma Power, Associate Professor at Western Sydney University, the key problem is the financialization of the housing industry.

“The financialisation of housing has been central to wealth creation in Australian households since at least the Second World War. Today, it underwrites the Bank of Mum and Dad, amateur property investors as landlords, asset-based welfare, and foreign real estate investment.”

The end result is that small and medium-sized builders (or SMEs) have been flushed out of the market and replaced by large corporate housebuilders—many of whom now also act as “land developers” and “speculators.” Indeed, according to the Housing Insitute of Australia (HIA), the top 20 housebuilders in Australia now build 25% of all new houses—many targeting investment rather than owner-occupier stock.

Wielding undue power over land, design, and material selection, major construction companies and property developers now manipulate supply chains to favour their business models rather than the good of the housing market.

Lendlease 2022 06 05 Yarrabillba Drone 005 V2 fotor 20231107105513 scaled
In November, Wood Central exclusively revealed that 5 of Australia’s largest greenfield housebuilding companies were using both timber and steel-based framing to build thousands of owner-occupier and investment-grade assets every year.

“For housebuilding, this applies to the whole development process: the preference for larger sites and standardised housing types, contracting arrangements in the supply chain, the collateral to administer planning approvals and arrange finance,” Mr Boydell said, adding that “smaller builders are increasingly at a disadvantage, unable to compete in the mass market at sufficient scale to challenge that market dominance.”

The free market now wields total control over land supply and development

This also influences land supply, with the Australian Housing and Urban Research Institute (AHURI) reporting that more than 98% of the housing stock is now built by private developers – compared to 80% in the 1950s.

With near total control over housing stock, private developers are now practising “land banking,” where builders and developers stagger the release of land to limit supply and maximise profits.

Indeed, a report published by Prosper in 2022 found that Australian developers now acted like oligopolists, deliberately limiting the release of lots to the market to maximise their profits—costing home buyers more than $5.9 billion nationwide.

“Our report shows that despite there being over 110,000 approved sites, only 26,000 sites, or less than a quarter, had been sold over the past decade. Essentially, the slower the sales, the more developers make.”

Capture 351

“If developers continue to control prices like this, we could concrete over the entire nation and still not make a dent in affordable housing. First-home buyers have been lured into Master Plan Communities under the false premise that supply is the key to their dreams,” it said.

Then, there is government withdrawal from public housing.

“The large-scale withdrawal of government from providing public housing has exacerbated this market concentration,” Mr Boydell said – with the AHURI reporting that the proportion of public housing has declined from 4.9% of the total stock in 1981 to 3.8% over the past four decades.

Last year, Four Corners tackled Australia’s broken building industry. Footage courtesy of @ABCNewsIndepth.

Even when it is spent, the government prefers to trust “tier 1” contractors with major public housing projects—who act as “contract managers”—pushing as much work onto subcontractors and paying them as late as possible to “de-risk” the build.

According to Stuart Green, a professor of construction management at the University of Reading, the flaw is that contractors now adopt a strategy of “structural flexibility,” which Professor Green defined as “the ability to expand and contract painlessly in accordance with fluctuations in demand.”

Speaking to the 21CC podcast, Professor Green blamed the UK government’s embrace of laissez-faire economic policy, which encouraged contractors to begin shedding as many overhead costs as possible, including training, direct employment, and investing in productivity, all while pushing risk down to their supply chains.

“The reality is that many contractors have progressively, over the course of the last four decades, removed themselves from taking responsibility for the physical task of construction,” said Professor Green, a professor of construction management at the University of Reading for 21 years, and head of its School of the Built Environment between 2010 and 2017.

The crisis is the result of free market economics and government disengagement.

The conclusion is stark: the current housing crisis is inevitable due to modern free market economics and government disengagement from the housing system.

To address this, Boydel wants to rethink the housing system, which will include:

  • Re-building a role for small housebuilding enterprises in the market
  • Re-establishing the role of government in providing public housing

To learn more about the role that material-lead supply chains can play in addressing the housing shortage, visit Wood Central’s special feature on prefabrication and offsite construction.

Author

  • Wood Central

    Wood Central is Australia’s first and only dedicated platform covering wood-based media across all digital platforms. Our vision is to develop an integrated platform for media, events, education, and products that connect, inform, and inspire the people and organisations who work in and promote forestry, timber, and fibre.

spot_img

Related Articles