Australia's oldest housing developer AVJennings has said that the country's residential sector is in a crisis due to a long term undersupply.
AVJennings is the first housing developer to report its earnings for the first half of this financial year and is seen as a bellwether for the conditions in the single dwelling residential sector.
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The latest NAB survey of residential property developers, owners, agents and investors shows house prices will climb slightly, while apartment prices will fall as local investors and foreign buyers pull back.
The larger groups of Stockland and Mirvac both report their first half data later this week. Stockland is focussed more on houses, while Mirvac has more exposure to apartments. Both have significant mixed use developments.
AVJennings, which focuses on land and housing packages, reported a 39.6 per cent rise in net profit to $16.5 million for the six months to December 31, 2015 and said there was a bias to the second half.
AVJennings chief executive Peter Summers said: "You can see for the best part of 15 years ... there has been a continuing undersupply of residential in Australia. You may recall that a couple of years ago, the then federal treasurer Joe Hockey actually made the comment that Australia has a housing crisis. That is absolutely true".
"There is no doubt that was the position then and remains the position now. The Australian residential market in its purest sense remains under supplied," Mr Summers said.
He said the developer's contract signings guidance for the current financial year was 1,800 to 2,100 lots. There is about 999 contracts signed already with current settlements at 694 lots, a rise of 5.2 per cent on the previous corresponding period. Work in progress is up 5.5 per cent on the prior corresponding period to 1,623 lots and 7.3 per cent up from the position at June 30, 2015 (of 1,512 lots).
The level of completed unsold stock remains insignificant at less than 1.1 per cent of total lots under control. First home buyers make up 33 per cent, local investors 29 per cent, trade ups or down sizers 37 per cent and foreign buyers are 1 per cent of total sales.
Mr Summers added the proposed tax reforms such as land tax, GST and stamp duty, would benefit the residential sector's affordability issue.
"Our markets are unders under supplied so demand should remain strong for some time," he said.
AVJennings' model is based on owning and developing land into housing with a bias to Melbourne, then Sydney, Brisbane and New Zealand. It is also a volume not price driven business.
Mr Summers said the group does not focus on apartments, which is a sector that has seen significant growth, particularly in Sydney and Melbourne capital cities.
With the tightening in bank lending standards, it is pretty clear that the lift in supply should result in a much more balanced housing sector.Savanth Sebastian, CommSec
"We participate in the deeper part of the residential market and offer a choice of new and completed houses .. which are affordable," he said.
"We believe that the important drivers of demand in our markets are quite different from those affecting markets for CBD apartment towers and inner ring established housing," Mr Summers said.
The results come as dwelling approvals rose by 9.2 per cent in December after sliding by 12.4 per cent in November. Housing approvals lifted by 5.7 per cent in December while "lumpy" apartment approvals lifted by 13.5 per cent.
According to the latest Australian Bureau of Statistics, in 2015, 232,078 new homes were approved – the strongest calendar year on record (records going back 36 years).
Savanth Sebastian, the economist at CommSec said Australia's long building boom may be showing signs of peaking but there is still a lot of work in the pipeline. From a longer term sense the lift in home building over the past couple of years has been extraordinary.
"There is no doubt that the boom in home building will continue to support economic activity over the next 12-18 months," Mr Sebastian said.
"However with the tightening in bank lending standards, it is pretty clear that the lift in supply should result in a much more balanced housing sector - as was highlighted by the Reserve Bank in the statement following the interest rate decision."