That view will resonate with Mirvac CEO Campbell Hanan, who delivered a well-received December-half profit on Thursday, with guidance for the full-year confirmed.

Housing’s sleeper issue

But Hanan says momentum in Mirvac’s residential business remains sluggish; Mirvac exchanged contracts on 629 lots in the December half, down from 845 in the same period the previous year.

Clearly, the cumulative impact of 13 interest rate rises and cost-of-living pressures are weighing on affordability. But Hanan says the sleeper issue is the cost of construction, which he says is being pushed higher by a range of factors.

While raw material prices are improving, labour shortages remain persistent, and collapses of building companies and subcontractors have escalated.

Weather disruptions have also been an issue, but development approvals and other planning hold-ups remain a big challenge too.

“Developers have to choose what is a fair and reasonable return for the risks they take in developing, and we need to take a lot of things into account,” Hanan says.

“How long do we need to hold the land before we can get it through a planning outcome? How expensive are the contributions to government for all of the services that we need to get to a site? How much is it going to cost to actually build a house for someone?”

Mirvac’s contract exchange says buyers, particularly first home buyers, are baulking at the prices Mirvac needs to charge to get an appropriate return.

But Mirvac is wearing some of this pain too; the gross profit margin in its residential business was 17 per cent in the December half, below its longer-term target range of 18 per cent to 22 per cent. The company expects that margin to fall to about 16 per cent for the full year.

The overall picture presented by REA and Mirvac is one of a deeply divided market. Sales of established homes remain robust, and prices are at or near record highs, but despite the apparent desperation of buyers to get into the market, new home sales are under intense pressure due to affordability concerns that aren’t going away.

Wilson says that in some markets, such as Perth, the price of a new apartment is higher than that of an established one, pushing more people towards the latter option.

Given the developer market is REA’s second segment, that’s weighing on Wilson’s growth. But his bigger worry is what five years of substantial declines in new projects is going to mean for housing supply in the coming years.

He suggests some form of stimulus for new builds may also be necessary, but says governments should stay away from changes that could affect the supply of rentals, such as tinkering with negative gearing or tenancy laws.

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