Your home, office or uni affects your mood and how you think. How do we know? We looked into people’s brains

Isabella Bower, Peter Enticott & Richard Tucker are architectural psychologists and researchers at Deakin University. Their research focuses on how thebuilt environment exposure modulates brain and body activity, which may affect underlying cognitive, perceptual, and emotional processes.

Think of a time when you felt vulnerable. Perhaps you were in a hospital corridor, or an exam hall, about to be tested. Now, focus on the building you were in. What if, without you knowing, the design of that space was affecting you?

We study environmental psychology, a growing field of research investigating the relationship between humans and the external world. This includes natural, and human-made environments, such as buildings.

Researchers could just ask people what they feel when inside a building – how pleasant or unpleasant they feel, the intensity of that feeling, and how in control they feel.

But we use neuroscience to see how the brain is stimulated when inside a building. The idea is for people to one day use that information to design better buildings – classrooms that help us concentrate, or hospital waiting rooms that reduce our anxiety.

Why study buildings this way?

We spend at least 80% of our lives inside buildings. So it is critical we understand whether the buildings we occupy are affecting our brain and body.

Buildings – hospitals, schools, offices, homes – are often complex. They can have various contents (fixtures, fittings and objects), levels of comfort (such as the light, sound, and air quality). Other people occupy the space.

There are also a range of design characteristics we can notice inside a building. These include colour (wall paint, chair colour), texture (carpet tiles, timber gym floor), geometry (curved walls or straight, angular ones), and scale (proportions of height and width of a room).

What did we do?

We wanted to see what effect changing some of these characteristics had on the brain and body.

So we asked participants to sit in the middle of a virtual-reality (VR) room for 20 minutes.

We designed the room with a door (to show height) and chair (to show depth), keeping it empty of other cues that might influence people. We modelled the room using dimensions set by the local building code.

Other studies have compared complex environments, which are more realistic to everyday life. But we chose to use a simple VR room so we could understand the impact of changing one characteristic at a time.

To measure brain activity, we used a technique called electroencephalography. This is where we placed electrodes on the scalp to measure electrical activity as brain cells (neurons) send messages to each other.

We also monitored the body by measuring heart rate, breathing and sweat response. This could reveal if someone could detect a change to the environment, without being consciously aware of that change.

Lastly, we asked participants to report their emotions to understand if this matched their brain and body responses.

What did we find?

We published a series of studies looking at the impact of room size and colour.

Making the room bigger resulted in brain activity usually linked to attention and cognitive performance. This is the type of brain activity we would see if you were doing a crossword, your homework or focusing on a tricky report you were writing for work.

A blue room resulted in brain activity associated with emotional processing. This is the pattern we’d typically see if you were looking at something that you felt positive about, such as a smiling face, or a scenic sunset.

Changing the size and colour of a room also changed brain network communication. This is when different parts of the brain “talk” to one another. This could be communication between parts of the brain involved in seeing and attention, the type of communication needed when viewing a complex scene, such as scanning a crowded room to spot a friend.

The rooms also changed the participants’ autonomic response (their patterns of breathing, heart activity and sweating).

Despite these brain and body responses, we found no change in what participants told us about their emotions in each of these different conditions.

This suggests the need to shift from just asking people about their emotions to capturing effects they may not be consciously perceive or comprehend.

What does this mean for designing buildings?

This work tells us that characteristics of buildings have an impact on our brains and our bodies.

Our next steps include testing whether a larger room affects brain processes we use in everyday life. These include working memory (which we’d use to remember our shopping list) and emotion recognition (how we recognise what different facial expressions mean).

This will enable us to understand if we can design spaces to optimise our cognitive performance.

We also want to understand the implications on a wider population, including people who may be experiencing poor mental health, or diagnosed with an underlying condition where the environment may have a larger impact on their response.

This will help us to understand if we can change our built environment for better health and performance.

Why is this important?

Architects have long claimed buildings affect our emotion. But there has been a lack of brain-based evidence to back this.

We hope our work can help shape building planning and design, to support the brain processes and emotions we might require under different circumstances.

This article was originally published on the Conversation. Find it here…

Saudi Arabia set to host Asian Winter Games at Neom "in the heart of the desert"

Tom Ravenscroft is the editor of Dezeen. Tom holds Master’s in architectural history from both Edinburgh and The Bartlett, where his writing focused on the architecture of data centres. Tom has worked for several publications in architecture and construction, including the Architects' Journal and Construction Manager.

Saudi Arabia has announced that it has won the right to host the 2029 Asian Winter Games at its Trojena resort, which is being designed by Zaha Hadid Architects, UNStudio, Aedas, LAVA and Bureau Proberts as part of the Neom development.

The 2029 Asian Winter Games will be hosted at a 60-square-kilometre skiing and outdoor activity resort that is set to be completed in 2026 as part of Neom, a renewable energy-powered region under development in Saudi Arabia.

"Trojena will have a suitable infrastructure to create the winter atmosphere in the heart of the desert, to make this Winter Games an unprecedented global event," explained Neom chief executive Nadhmi al-Nasr.

The resort is being developed as part of Neom

The resort, which will "offer year-round outdoor skiing" is being built around 50 kilometres from the Gulf of Aqaba coast in a mountainous area that has elevations ranging from 1,500 metres to 2,600 metres.

It will be the first location in the country where outdoor skiing will be possible.

Named Trojena, the development is being designed by a team of architects from all over the world including UK studio Zaha Hadid Architects, Dutch practice UNStudio, international studio Aedas, German practice LAVA and Australian studio Bureau Proberts.

The masterplan was designed by LAVA, which has also designed a tunnel-shaped development described as a "futuristic folded-vertical village" by Neom.

Alongside the village will be a man-made freshwater lake designed by Bureau Proberts, while Zaha Hadid Architects "came up with other elements of the design", said Neom.

It will include a "futuristic folded-vertical village"

Aedas is designing the ski village itself, while UNStudio will create a series of ski-slope villas.

In total, the development will contain more than 3,600 hotel rooms and 2,200 homes.

The resort includes a large, man-made lake

The resort is one of 10 regions being developed as part of Saudi Arabia's Neom region. It will be connected to The Line mega city, which is being built as another major component of the Neom development.

Unveiled earlier this year, The Line will be a 500-metre-tall, mirror-clad skyscraper that is being designed to house nine million people.
After it was unveiled numerous urban design experts expressed skepticism about the Line's utopian vision and its sustainability claims.

However, in an exclusive interview with Dezeen Neom executive director for urban planning Tarek Qaddumi said that The Line megacity will "revolutionise our current way of life".

The images are courtesy of Neom.

This article was originally published on Dezeen. Read it here.

Record Crane Numbers In Sydney And Gold Coast

Domenic Schiafone is Rider Levett Bucknall’s Oceania Director of Research and Development. Domenic has over 12 years of experience in the quantity surveying sector, including 4 years where he was based in the Middle East (Dubai & Abu Dhabi).

According to last week’s release of the Q3 2022 RLB Crane Index®, crane numbers across the country rose sharply in the past six months; 300 new cranes were added on developments sites, and 245 were removed.

With the additional 55 cranes, there is now a total of 868 cranes in operation nationally, a new high in the RLB Crane Index® since its inception in 2012.

This edition of the Index includes the introduction of two new sectors within the non-residential market; cranes on aged care and data centre / industrial developments have been given their own sector to reflect the growing importance and numbers of these projects.

Inclement weather, material and labour shortages still an issue

Domenic Schiafone, Rider Levett Bucknall’s Oceania Director of Research and Development said, “Whilst this strong number shows the continuing resilience of our industry, projects are also being delayed due to increases in inclement weather events, shortages of materials, and lack of skilled labour.”

He added, “If cranes providing logistical assistance to multi storey developments remain on site longer than anticipated due to weather events and supply chain disruptions, the cost of preliminaries increase, causing overall costs to rise.”

The strong growth in crane numbers for Q3 2022 appears to correlate with the strong national activity numbers. Upon investigation, the churn rate of cranes around Australia has fallen significantly over the past 18 months. From Q1 2019 until Q1 2021, the churn rate hovered around the 50% mark. Since Q1 2021 the churn rate has dropped nationally to reach 28% in Q3 2022.

Introducing the RLB Crane Index® churn rate

New in this edition, the RLB Crane Index® churn rate is calculated as the number of cranes removed in a period, divided by the closing number of cranes, and expressed as a percentage.

A lower crane churn rate percentage is an indicator that cranes are remaining on sites longer. Canberra has the highest churn rate for this edition at 70%, whereas Sydney recorded a 27% churn rate. This changing churn rate factor is aligned with recent media reports that projects are delayed due to increases in inclement weather events, shortages of materials, and lack of skilled labour.

Looking around the country, Sydney continues to be the main driver of the crane count. Of the 868 cranes sighted across Australia, 380 were in Sydney, 206 were in Melbourne, 82 were in Brisbane, 51 were in Perth, 55 on the Gold Coast, 23 in Canberra, 17 in Adelaide, 16 in the Sunshine Coast, 15 in Wollongong, 12 in Newcastle, 10 in the Central Coast and two cranes in both Hobart and Darwin.

Strong crane growth in all sectors except commercial and recreation

According to the latest ABS data, construction work done for the 2022 financial year was up by 1.1% (or $2.4B) across Australia compared to 2021 results. Total residential work done was down 0.1% (or $1B) non-residential activity was up by 2.3% (or $1.1B). Engineering activity was up by 1.6% (or $1.4B).

Growth in approval values was seen in the 2022 financial year, with total building approvals rising by 4.2%, or $5B in real terms. Residential approvals lifted 2.6% and non-residential 6.3%. Recent July 2022 approval numbers are trending downwards, which may impact future crane numbers.

Strong national crane growth has been seen in almost all sectors except commercial and recreation, which both fell. The residential index rose to its highest level since Q1 2019, and the non-residential index continued its upward trajectory to reach its highest value in the past 21 editions of the index.

New sectors included in non-residential crane count

The non-residential index has again increased to a record level, rising to 290 points from 268 in Q1 2022. This 7.4% increase represents an additional 25 cranes. Included within the non-residential sectors for the first time are the new sectors of aged care and data centre / industrial. There are 14 cranes on aged care developments across the country and 21 on data centre / industrial developments. In previous editions these new sectors were counted within the residential and mother/mixed use sectors. Crane numbers for Q1 2022 have been retrospectively adjusted for these new sectors for comparison purposes.

Domenic continued, “Australia’s crane capital, Sydney, increased crane numbers by another 32 to total 380 cranes. This represents 44% of all cranes across the country. The Gold Coast and Melbourne recorded double figure lifts in crane numbers of 14 and 12 respectively. Both Canberra and Perth recorded crane reductions of eight and four respectively.

Sydney records its highest ever result

Sydney’s Q3 2022 RLB Crane Index® recorded its highest ever result in the 21st edition. The index rose from 215 points to 235, a 9% increase. The increase represents a net increase of 32 cranes across Sydney. During the past six months there have been 93 cranes removed and 125 new additions resulting in a total of 380 cranes, up from 348 previously.

In this edition, Sydney recorded significant crane number increases in the residential, civic and data centres/industrial sectors. Small increases were recorded in the aged care, civil, education and mixed-use sectors, while the health, hotel and retail sectors remained static. There was a small drop in recreation projects.

The residential sector jumped this count to record 79 additions and the removal of 63, bringing the total count to 259 cranes across Sydney. Residential cranes make up almost 70% of all cranes across Sydney.

Most Melbourne cranes centred around CBD

According to the RLB Crane Index®, there were 79 cranes added to projects across Melbourne and 65 were removed. This brings the current crane number to 206, up from 192 cranes recorded in Q1 2022.

Melbourne’s inner-city remains the most prevalent region for cranes with 46% of all Melbourne’s cranes. This number is close to the last edition, but the trend is still that larger scale projects are moving out to the suburbs. Traditionally, we have seen around 60% of all Melbourne’s cranes centred around the CBD and surrounding inner city suburbs.

Overall, the rise in cranes occurred in the residential sector (+5), data centres/industrial (+4), retail (+4), commercial (+3), health (+2), recreation (+2) and civic (+1). Falls were seen in the mixed-use sector (-5), aged care (-1) and within education projects (-1). The hotel sector remained constant.

The residential sector is still the dominant sector in the Melbourne region, accounting for almost 50% of all cranes for this edition.

Residential dominates on Gold Coast

On the Gold Coast, a total of 21 cranes was added and nine cranes were removed, bringing the coast’s total to 52. The residential sector continues to dominate the region, accounting for more than 95% of all cranes on the Gold Coast. The other sectors with active cranes include aged care (1), commercial (1) and mixed use (1).

The residential sector saw 20 new cranes placed on sites and eight removed, bringing the sector’s total to 48 cranes. This is an increase of 12 cranes from the Q1 2022 edition of the index.

This article was originally published on RLB’s website. Read it here…

‘We haven’t built it, and they’ve come’: the e-change pressures on Australia’s lifestyle towns

Julian Waters-Lynch is a lecturer in Entrepreneurship, Innovation and Organisational Design at the School of Management at RMIT University. Co-author Andrew Glover is a postdoctoral research fellow with the Sustainable Urban Precincts Project (SUPP) at RMIT University, where their co-author Tania Lewis is Co-Director of the Digital Ethnography Research Centre and a Professor in the School of Media and Communication. The authors explore the struggles associated with the regional shift seen over the past two years.

Michael and Karen moved from Melbourne to Castlemaine, about 130km northwest of Victoria’s capital, in mid-2020 – using, like tens of thousands of Australians, the shift to remote work to make a larger lifestyle change.

They sold the small two-room inner-urban apartment they had bought in 2018 and bought a large three-bedroom home on a 1,200 square metre block in the historic goldfields town (population about 10,000).

“There’s an orchard, an amazing garden for growing veggies, and a good shed out the back,” enthuses Michael. “I have a room now for full-time remote work and a third bedroom for the baby, which is on its way.” He plans to convert the shed into a studio for Karen, an artist.

But not everything was easy. “The internet connection has been dropping in and out, repeatedly and for large durations,” Michael says. “I’ve had to use my phone’s 3G hotspot as a backup.”

We’ve tracked the experience of Michael and Karen along with 20 other households in Victoria, New South Wales and Queensland to better understand how the influx of “e-changers” to “lifestyle towns” is affecting infrastructure and social cohesion.

This demographic shift has long been predicted – facilitated by technology and the population stresses in major cities. But the pandemic accelerated the trend.

Slow internet speeds are just the tip of the infrastructure pressures being placed on hundreds of towns within a few hours’ drive of cities – the sweet spot for e-changers looking to combine city jobs with country town lifestyles. Others include health and education services, water security and, most urgently, housing availability and affordability.

Helen Haines, the independent federal member for the rural Victorian electorate of Indi, has put it like this:

For a long time, when we talked about regional development, we said ‘build it and they will come’. Well we haven’t built it and they’ve come.

It’s a challenge that will require cooperation between federal, state and local policy makers to resolve.

Rise of the e-changers

In 2016 demographer Bernard Salt described living in a country town while keeping a city-based job as the ultimate Australian lifestyle choice:

Move to a lifestyle town, telecommute using broadband, and come into the city perhaps once a week for face-to-face meetings. Sounds pretty damn good to many Australians.

He estimated about one in six Australians were interested in doing this. The major obstacle: having a job they could do from home. But based on Australian Bureau of Statistics data, he predicted the proportion of the workforce able to work from home would double from 4% in 2016 to 8% by 2026.

COVID-19 has dramatically changed that trajectory, with up to 40% of the workforce working from home during the pandemic’s peak.

This, along with favourable interest rates, enabled tens of thousands to make the shift. Between July 2020 and June 2021 the population of regional Australia grew by about 70,900, while capital cities declined by 26,000 – the first time in 40 years that regional population growth outpaced the cities.

Most of this shift occurred in NSW and Victoria. Sydney’s population fell about 5,200, while the rest of the state increased by 26,800. Melbourne’s population declined by about 60,500, with the rest of the state picking up 15,700.

Indicative of the e-change trend was the decline in the median age of those migrating away from the cities (from 38 to 34 in South Australia, from 37 to 33 in NSW, and smaller changes elsewhere).

Looking at lifestyle hotspots

Our research mostly focused on e-changers moving to “hotspots” – towns within a few hours’ commute of a capital city. But we also included some towns further afield, such as Broken Hill in far-west New South Wales and Rockhampton in central Queensland.

We were interested in their experiences with remote work, given Australia’s fixed broadband speeds already lag behind most industrialised countries, ranking 65 of 182 countries on a current global index. Regional towns generally fare even worse.

Two households in our study did report better speeds but nine said slowness and bad connection limited their ability to use it for work. One recounted spending weeks chasing their service provider before it was discovered the copper wiring to their home had eroded. These problems are unlikely to get better in any area affected by heavy rainfall and flooding events.

Gentrification hurting low-income residents


A more fundamental issue for lifestyle towns is what growing populations mean for the attributes attracting e-changers in the first place.

In the Hunter Valley, Southern Highland and Shoalhaven regions of NSW, and in the Sunshine Coast and Gold Coast areas in Queensland, house prices rose more than 35% in the 12 months to January 2022.

This has contributed to an unprecedented rental crisis, displacing those on lower incomes and making it harder for local businesses to fill job vacancies.

A discussion paper published by the Regional Australia Institute in May 2022 noted that while regional Australia’s population grew by an average of 76,500 people a year in the decade to 2020, the number of homes approved for construction declined in five of those ten years. It argues that market forces alone are insufficient to address the problem.

Population influxes also risk altering the appealing character of lifestyle towns. The population surge in Torquay on Victoria’s Surf Coast, for example, has seen the once sleepy coastal town come to resemble an outer suburb of Geelong.

Investment urgently needed

Michael and Karen may not stay in Castlemaine. But they don’t plan to move back to Melbourne. They are considering Tasmania. They like working remotely, having more space and time for their young family, being closer to nature and the sense of community a country town offers.

All the evidence suggests hundreds of thousands more will follow their path, with hybrid and remote work here to stay.

Good planning and policy is needed to ensure this historic demographic shift does not overwhelm these towns. To maintain their livability and ability to accommodate remote work, they require urgent investment in telecommunications and transport infrastructure, health and education services and – most of all – housing.

This article was originally published on the Conversation. Find it here…

What firms are doing to address quiet quitting

Companies are looking to collaboration and wellness initiatives to reengage employees

JLL are property financiers with a diverse range of clientele. With sustainability at the core of their ethos, JLL are working toward creating a world-leading sustainable property development firm. In this article, JLL explore how the trend of “quiet quitting” can be stopped before it starts.

Employees are being accused of doing the bare minimum to get by, a trend dubbed quiet quitting that has bubbled up in the wake of huge disruptions to the how and where people work.

The viral phenomenon, popularized by TikTok creator Zaid Khan, claims that while people are still performing their assigned tasks at work, they are rarely going above and beyond for reasons such as to avoid burnout or to prioritize their mental wellbeing.

It represents a stark shift away from the so-called hustle culture that previously embodied success at work. To be sure, the phrase is broad, and evidence is largely anecdotal.

But since the pandemic, employees have become increasingly disengaged.

One-third of employees feel disenchanted by the changes in the transformation of work, while nearly a quarter of employees would consider leaving their jobs if they no longer feel recognized by the company, according to JLL’s Workforce Preferences Barometer.

“The feeling of disenchantment and the lack of recognition can be attributed to the increase in workload and the feeling of isolation when working from home even now,” says Martin Hinge, Head of Project and Development Services, Asia Pacific, JLL.

The new trend piles pressure on companies to solve problems that arose from the pandemic, which upended traditional work routines and altered employees’ expectations of the office.

Redesigning the office

Many companies are counting on a return to the office to reverse the quiet quitting trend. For that to happen, however, changes that make the office more conducive — such as the choice of workspaces, office acoustics, and a stronger focus on wellness initiatives — are seen as key.

The quiet quitting phenomenon comes at a time when companies have been actively stepping up efforts to enhance the workplace experience through office activation, technology, and design.

That’s because some disconnect can come from the office itself. According to JLL’s Hybrid Work Decoded report, there is now a significant gap between the expectations of hybrid workers and the workplace experience currently delivered to them.

In response, up to 56% of organizations are already planning to refit or redesign their office space in the next 12 months, according to senior HR professionals surveyed by JLL.

Listening to employees

“There’s no easy fix with office design because every office, every company, and every country are markedly different,” says Hinge. “Research-based design is needed to understand what employees want to do in the office and what they expect from the office.”

Redesigning goes beyond “putting up a potted plant or painting the wall blue”, he says, so listening to employees’ preferences and knowing which aspect of the office to tackle is paramount.

“Companies have to focus on what enables the experience that employees get when they come through the door till the time they leave,” says Hinge. “You have to understand what they like doing, seeing, and hearing so you can keep them coming back again.”

For instance, one of the most under-delivered aspects of the office experience according to employees is the quality of acoustics, JLL data shows. The lack of sound privacy and excessive noise levels, especially in open areas and hot-desking workstations, are affecting the workplace experience for some.

“Employees have gotten used to working at home where they can control the environment in a dedicated space, much like having their own office,” says Hinge.

This transition back to the office will take some getting used to, also partly because the role of the office is changing.

“What we see is that the [office] space is used in a very different way,” says Christian Ulbrich, JLL Global CEO and President, during a recent interview with Yahoo Finance. “We had, before the pandemic, a lot of ‘me’ space, and now we have a lot of ‘we’ space because the main priority is to collaborate.”

Having an adequate selection of workspaces, including outdoor spaces, creative spaces, networking spaces, and learning spaces, is therefore essential to accommodate different employee needs.

Wellness in the workplace

Beyond office design, wellbeing initiatives are also a key area where employees want to feel more supported by their employers, according to those surveyed by JLL.

“This goes to show that office design is only complementary, but it isn’t the sole factor that addresses quiet quitting,” says Hinge.

Possible solutions to address the lack of wellbeing initiatives include offering free mental health assessments or incorporating therapeutic spaces and biophilia to support the wellness experience in the office, Hinge says.

With the quiet quitting phenomenon gaining steam, every move contributes to the reversal of the trend, so focusing on how the office experience influences employee behavior is the priority.

“Organizations have to address this from a behavioral point of view. It’s all about human behavior, human interaction, and how employees feel,” says Hinge.

“In this sense, office design is more of an enabler alongside office activation and technology, all which are equally essential in elevating the workplace experience, bringing employees back to the office, and ultimately reversing quiet quitting.”

This article was originally published on JLL’s website. Read it here…

Look where Australia’s ‘1 million empty homes’ are and why they’re vacant – they’re not a simple solution to housing need

Emma Baker, Andrew Beer & Marcus Blake are housing researchers in South Australia and ACT. The respective authors have keen interests in public policy regarding remediations to homelessness in Australia; this week’s article sheds light on how bodies of polity qualify housing, and why so many ‘homes’ in the nation are left abandoned.

The recent release of 2021 Census data revealed a shocking “one million homes were unoccupied”.

This statistic sent housing commentators, government agencies and policymakers into a spin. At a time of significant housing shortages, this extra million homes would surely make a big difference. They could provide housing for some homeless, ease the rental affordability crisis, and get first-home owners into their first home.

There has been a great deal of speculation about how this has happened. Has it been caused by overseas millionaires buying up housing and leaving it as an empty investment? Is it Airbnb taking up homes that could be used for families? Or are cashed-up Gen-Xers double-consuming by living in one house while renovating another?

So, why were 1,043,776 dwellings empty on census night?

In fact, we’ve got a pretty good idea of what’s going on. First, it’s not a new phenomenon. When we compare 2021 with previous censuses, a slightly smaller percentage of our private dwelling stock was classified as unoccupied – just under 10%, compared with nearly 11% at the previous census in 2016.

Since the release of the data, many journalists have pointed to this startling number of empty homes, portraying them as abandoned or left empty. There is almost certainly a much more ordinary and less startling story to tell. We suspect there are three main explanations.

A big part of the story is how the Australian Bureau of Statistics (ABS) determines whether a dwelling is occupied or not. In short, it does its best by using a variety of methods, but, for the majority of dwellings, occupancy “is determined by the returned census form”. If a form was not returned, and the ABS had no further information, the dwelling was often deemed to be unoccupied.

This is important to our interpretation of the empty homes story. At any one time, lots of things are going on in the housing market, and most of it is a long way from abandoned or empty.

For example, 647,000 dwellings were sold in 2021. This means many thousands of dwellings were unoccupied on census night because they were up for sale or awaiting transfer.

The second and perhaps most important contributor to the empty homes story is holiday homes. Estimates vary, but we know 2 million Australians own one or more properties other than their own home. It’s estimated up to 346,581 of these properties may be listed on just one rental platform, Airbnb.

It’s part of the census design to pick a night of the year when the most Australians are at home. If you think back to Tuesday, August 10 2021, it was a Tuesday night in mid-winter, so many of Australia’s holiday homes would have been empty – and counted as unoccupied.

Where are these unoccupied dwellings located?

If we map the distribution of unoccupied dwellings across Australia, two things stand out.

Firstly, unoccupied dwellings tend to be concentrated in sea-change and inner-city holiday spots, such as Victor Harbor in South Australia (as the map below shows) , Lorne in Victoria and Batemans Bay in New South Wales. This reinforces the holiday homes explanation.

It’s also striking how few unoccupied homes are in our major cities. Sydney is a great example. The map below shows a very uniform absence of unused housing across the whole metropolitan area.

So should we worry about the ‘million unoccupied homes’?

Yes and no. An unknown proportion in that million are not empty, just assumed to be vacant because a census form wasn’t returned. We should regard this as a systematic error in the counting process. No doubt the ABS will be aiming to reduce this in future censuses.

Some of that million are genuinely vacant due to the way the housing market works. This includes, for example, the sales process and the need for vacant possession.

Yet, even if there are substantially fewer than a million vacant dwellings, the reality is that there are too many ways homes in Australia can be left unoccupied for weeks, months, years – and it’s costing all of us. Those who are homeless are paying the highest price. But the rest of us feel the pain through higher rents, increased rates to pay for infrastructure constructed for housing that isn’t occupied, and greater difficulties in getting into the housing market.

We need to find ways to ensure houses are full of people, not left empty as owners wait for investment opportunities to mature, or for absentee owners to go on holiday. We know there are solutions out there. Removing caps on council rates and treating short-term rentals as commercial properties essential to the tourism industry are just two ways we can get better occupancy of our stock. We just need to find the will to implement them.

This article was originally published on the Conversation. Access it here…

Planning a renovation or new build? Here’s the outlook for skyrocketing steel and timber prices

Flavio Macau is Chapter WA President and Board Member of the Australasian Supply Chain Institute (ASCI) in addition to being the Associate editor of the RBGN academic journal. Flavio is a renowned international specialist regarding topics such as supply chain shortages and disruptions, global logistics trends, and the future of manufacturing.

It’s a tough time to build or renovate a house in Australia. Prices are up, well above inflation. Finding materials and getting them on time is a challenge. Builders are grappling with too much work and stress (with some folding as costs rise too fast). Customers are being confronted with eye-watering price quotes.

And as any would-be home builder or renovator knows, the price of timber or steel is crucial.

So what exactly is happening here, and what’s the outlook?

Timber: huge demand, not enough supply

According a 2021 Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) report:

average annual hardwood log availability is forecast to be 1 million cubic metres (9%) lower over 2020-24 than 2015-19 […] softwood sawlog availability is projected to be 10% lower in the period of 2020-24 than was projected in 2015.

The same report shows minimal new plantations were established in recent years.

In the 2019-20 bushfires, 130,000 hectares of plantation forest were burned. Recent floods didn’t help.

Native forest harvesting is also falling; it will be banned in Western Australia by 2024. Victoria will phase out the industry by 2030.

A timber shortage was expected as early as 2020 but the start of the COVID pandemic – when the housing market momentarily froze – brought some respite, with house construction and timber prices initially going down.

Then came HomeBuilder, which encouraged consumers to proceed with purchases or renovations to reignite the house construction market.

The number of dwelling units commenced shot up by more than 60%, from about 41,000 by September 2019 to 67,000 by June 2021.


The stock of dwellings under construction went from about 180,000 in 2020 to more than 240,000 today.

If you are building many more houses, you need more construction materials. A mild deficit projected for 2020 has now turned into a black hole.

With less timber available, industry sees a deficit of at least 250,000 wooden house frames in the next 15 years. Scarcity is the new normal.

The result is a growth in domestic prices as timber processors struggle to meet contract obligations.

Logs cannot be manufactured. They grow, and this takes about 20 years. The only way to go through current shortages is by importing or replacing timber.

Importing timber isn’t cheap. Australia has very low costs to grow and harvest, less than half of major global exporters. Adding to that, international shipping rates have surged in the past two years.

These act as barriers to imports, which fell considerably in the past decade.

Steel: supply chain woes and war on Ukraine

Steel is the typical replacement for timber. But builders and renovators will not find good news there either. Steel prices also skyrocketed by more than 42% in the year ending March 2022, according to the Australian Bureau of Statistics.

Troubled supply chains have reduced supply at a time of unexpectedly high demand, and investment has been scarce in recent years.

When a recovery was on the horizon, war hit shipments of key stock from Ukraine and Russia.

With few players left, home builders in Australia assert they’re at the mercy of a de facto monopoly by BlueScope Steel in the light gauge steel framing market.

Earlier this year, BlueScope customers had to contend with a 38% price increase on steel fabrication products.

A 2021 federal government decision to impose dumping duties of up to 20.9% on steel imports from Korea and Vietnam did not exactly help bring prices down.

In February 2022, BlueScope posted its largest half-year profit ever.

According to its chief executive, Mark Vassella, current trends are here to stay. The company intends to make the most of current market conditions and expand its capacity, with plans to reignite a blast furnace deactivated in 2011.

What happens next?

The price outlook is grim.

Master Builders Queensland chief executive Paul Bidwell reckons material price rises may not yet have peaked.

There is no indication timber prices will go down again, as they did in 2020. As for steel, 2013 was the last time there was a significant price reduction.

The Australia Bureau of Statistics (ABS/HIA) recorded in June this year an increase of about 40% in prices for reinforced steel, structural timber and steel beams.

Thanks to the housing construction boom, building projects now face delays, which further drives up construction costs.

Several builders have gone broke. Those under a fixed-price contract who factored low material prices into their quotes are now facing the hard truth of working for little or no profit, or even at a loss.

Will construction prices come down? One can only hope – but it’s unlikely to happen anytime soon.

This article was originally published on the Conversation. Read it here…

7-star housing is a step towards zero carbon – but there’s much more to do, starting with existing homes

Gill Armstrong, Alan Pears, Margot Delafoulhouze and Trivess Moore are architectural technologists and urban planners who focus on climate adaptation infrastructure. These researchers are qualified in retrofitting technologies which aim to decarbonise the construction industry, with the target of net-zero in mind.

Energy-efficiency standards for new homes in Australia are being upgraded for the first time in a decade. New homes will be required to improve minimum performance from 6 stars to 7 stars under the Nationwide House Energy Rating Scheme (NatHERS). Federal, state and territory building ministers agreed on the change last Friday.

The rating will also use a whole-of-home energy “budget”. This will allow homes to meet the new standard in different ways. The standard will come into force in May 2023, and all new homes will have to comply by October 2023.

On Monday, the NSW government also announced large commercial developments, as well as big state projects, will have to submit a “net-zero statement” to gain planning approval. The statement must show their buildings are either all-electric or can fully convert to renewable energy by 2035. In addition, new homes and renovations will have to reach a 7-star rating under the state’s Building Sustainability Index (BASIX). The current minimum is 5.5 stars.

These upgrades represent a step in the right direction, but much more remains to be done to future-proof Australian homes. Buildings account for about 20% of the nation’s emissions. Further upgrades to the National Construction Code (NCC) are needed before 2030 to achieve Australia’s climate targets.

We’re still short of zero-carbon buildings

Across Australia, more than 5.5 million houses are predicted to be built between 2023 and 2050. The upgraded construction code means they will perform better in climate extremes and emit less carbon.

So this long-overdue change is good news for households and the planet. It means new houses will use an average of 24.5% less energy to keep warm and cool. And new condensation provisions will help to control mould growth, a health problem for tightly sealed homes with poor ventilation.

The International Energy Agency recommends advanced economies such as Australia have a “zero-carbon-ready building code” in place by the end of the 2020s. This would ensure all new buildings in the 2030s will be zero or near-zero carbon.

Governments around the world have already moved in this direction, including the European Union and California. Australia is still well behind international best practice in design and construction.

Best-in-class energy efficiency, full electrification and renewable energy supply will be crucial to fully decarbonise the building sector. Further updates to the National Construction Code in 2025 and 2028 will need to ensure Australia implements a “zero-carbon-ready” building code by 2030. Only then can Australia deliver on its legislated climate targets and protect Australians from a warming climate and higher energy prices.

Cost arguments against further upgrades don’t stack up

Australia can’t wait another decade to upgrade building standards again. Arguments against higher standards tend to focus on the ticket price of new houses, but most homes are bought with mortgage loans and monthly repayments.

Higher standards would reduce energy consumption to near zero, providing a buffer against energy price spikes and increases. Low or negative energy bills (as a result of payments for exporting electricity) will largely offset the initial cost of building better-performing homes. Households will also be less vulnerable to wider climatic events such as heatwaves.

A cornerstone of the policy-making process is cost-benefit analysis undertaken by government. The analysis behind the NCC update failed to fully grasp the economic, social and environmental benefits of higher standards.

Cost-benefit guidelines, which are set by the Office of Best Practice Regulation, should be reviewed. Any analysis must properly reflect costs and benefits over the lifetime of a home, including the impacts of reduced energy and health bills on mortgage repayments. Ensuring further changes to the NCC accurately represent the full benefits will be critical to avoid another decade of stalled action.

Banks have already started to recognise the value of sustainable housing. Their lowest mortgage rates are for new green homes.

What about all the existing homes?

While ensuring all new buildings are built to zero-carbon standards after 2030 will be important, improving the quality and performance of the majority of Australia’s 10.9 million homes is equally if not more important. Existing building stocks are inadequate – most housing was built before energy performance standards existed.

A major wave of retrofitting is needed to upgrade these homes. Deeper upgrades can be done during renovations to deliver improved performance, safe indoor temperatures and lower energy use and bills.

Existing Australian homes for the most part rate below 2 stars in energy performance. Their occupants experience extremes of temperature during summer and in winter in areas such as Melbourne, Canberra, Adelaide and Tasmania.

Extreme hot and cold are harmful to human health. The impacts are greatest for people on low incomes and/or who rent.

We have many examples of how to cost-effectively retrofit housing. These changes can have significant impacts on household bills and health.

Retrofitting will be more resource-efficient than demolishing and rebuilding. It will also retain the architectural and heritage value of our cities and suburbs.

However, a number of measures will be required to retrofit housing on the scale needed. These include financial incentives from banks, government subsidies, minimum requirements at point of sale, minimum rental standards, education of landlords, etc.

Net-zero code and retrofitting should be top of the agenda

Australian building ministers are due to meet again early next year. They must quickly turn their attention to ensuring the 2025 and 2028 upgrades pave the way to a zero-carbon-ready building code by 2030.

Governments should also work towards a national retrofit wave strategy that aims for a step change in the energy performance of existing homes. Essential elements of the strategy include the introduction of mandatory disclosure of home energy performance and the full electrification of Australian homes.

Without such changes, Australian housing and households risk being locked into poor-quality, under-performing and costly housing for decades.

This article was originally published on the Conversation. Access it here…

Selling off the plan has always been dictated heavily by the market

Having spent the last 8 years in off the plan sales, Nihal has earnt a reputation as a genuine, caring salesman who goes over and above to ensure the best possible outcomes for his Developers and Clients. After joining Three Sixty Property Group in 2019, Nihal has built great relationships with Developers such as Citiplan, Platinum and PACE and has worked on medium to high end exclusive projects like The Park Residences Caulfield North, Park Lane Elsternwick and Hampton Quarter.

Selling off-the-plan (OTP) has always been heavily reliant on the established home and apartment market. Since the beginning of 2022, we have witnessed a combination of unprecedented events that has required us to re-assess our market and adapt to this everchanging real estate environment.  

An indication of the impact on our market, REA Group reported a 40% drop in enquiries for new residential projects since May 2021.  

When the residential market is strong and established housing stock is commanding high prices, downsizers tend to drive the demand for OTP product. With real estate agents knocking on household doors promoting the local market strength, comfortable vendors are tempted to explore the possibilities of selling; this subsequently increases the volume of enquiries into our display suites.  

Data from the 2021 Census of Population and Housing shows that Millennials (25-39 years old) are now on par with Baby Boomers (55-74 years old) in terms of demographic size, representing the largest generational group in the nation. 

Baby Boomers and Millennials each have over 5.4 million people, with only 5,662 more Baby Boomers than Millennials counted on 10 August 2021. Over the last ten years, Millennials have increased from 20.4 per cent of the population in 2011 to 21.5 per cent in 2021. In the same time, Baby Boomers have decreased from 25.4 per cent in 2011 to 21.5 per cent in 2021.  In the 1966 Census, Baby Boomers accounted for 38.5% of the population. 

As the increasing population of Millennials scale the workforce and move into the next phase of their lives, they will become the primary purchasers of Baby Boomer homes.  

As a population, Boomers typically have strong travel aspirations, free time and financial capacity; this makes the concept of ‘lock up and leave’ residences very appealing. Additionally, Boomers are more likely to have outright purchasing ability 

in comparison to their Millennial counterparts. Despite economic volatility (which is exacerbated by rate-rise anxiety), Boomers are still booking in to visit our display suites. Their key concerns articulated to us is depreciating home values relative to 2021 prices.  However, considering that the increase in values over the last few years is significant even with softening prices (we are still one of the world’s least affordable housing markets), we can still expect to see Boomers seeking opportunities to buy OTP. 

Downsizers have consistently been the most significant buyer cohort for OTP apartments that I sell in Melbourne’s south-eastern ring. They have lived in their homes for anywhere between 20-60 years and are motivated to move for a multitude of factors; security, changing needs, low maintenance, location - and their most significant asset providing them substantial equity (often with little or no mortgage). This is a strong motivator to purchase an apartment which might cost just 50-60% of the price of their existing home, leaving the rest to their SMSF or their families. Interestingly, many grandparents I meet support their kids with babysitting their grandchildren and often need 3 bedrooms for sleepovers. 

I believe we are witnessing the most challenging OTP market since the Stamp Duty concession changes of 2017; this policy required investors to pay full stamp duty for off-the-plan purchases, while owner occupiers still receiving the heavily discounted concession. However we have learned to adapt to the changing market and this has resulted in a collaborative process that actively engages our clients at several stages of the sale (and now design) process. This can only happen when we work with quality developers, who fully understand their market and are respectful of their purchasers.  Also, have a strong developer/builder relationship is crucial.  

After eight years of selling OTP, I know that a downsizer client really knows what they want, and don’t want. Therefore we work with our experienced developers to facilitate a bespoke engagement process. We provide our clients the ability to customise their apartments, ensuring that it meets their exact requirements; this is important as our clients view their purchase as their forever-home.  

Interestingly, often the most difficult part of the OTP process is educating Baby Boomers on how to embrace new technology and smart homes.  

The biggest difference between established and OTP selling is that existing dwellings provide a material experience.  Buyers are able to see, feel and walk through the space and envisage themselves living there. With OTP sales it is important to provide a visual narrative, which is crucial to illustrating creative potential and to assist our clients determine the perfect final product.  

Most buyers have a strong sense of what they want, which makes the co-design process appealing. Involving buyers in meetings with architects, consultants, and interior designers assists them become emotionally invested in bringing the final product to life. We also find that having a longer settlement period, typically between one to two years, provides buyers with more time to scale down, without feeling rushed to leave their home which has provided much sentimental value over their time living there. 

 With so much noise and negative reporting in the media, it is more important than ever to be proactive in both educating and listening to buyers. At the same time, we know that buyers have greater access to information and will research all aspects of the project. They will vet everyone from the salesperson to the developer,  so for our sector it must be a trust-driven process.   

As construction costs and interest rates rise we are seeing projects being shelved. This will ultimately see supply diminish and demand for boutique developments increase. Baby boomers will still want (or have to) to scale down, as the stairs in their homes give their knees grief and large homes and gardens require constant care and maintenance.  

We can only stay true to course and trust in the RBA’s foresight and the quality of the builders and developers we work with - so that we can be optimistic about the rest of 2022.  

Tall timber buildings are exciting, but to shrink construction’s carbon footprint we need to focus on the less sexy ‘middle’

Lisa Ottenhaus conducted a PhD in the seismic performance of connections in tall timber buildings. Lisa is currently researching adaptable timber buildings designed for disassembly and reuse at end of life; concurrently Lisa is a Steering Committee member of the CTBUH's 'The Future Potential of Steel-Timber Hybrid Structures' research project, and leads the adaptability theme of Working Group 1 of the COST Action 'Holistic Design of Taller Timber Buildings'.

Developer Thrive Construct recently announced the world’s tallest steel-timber hotel to be built at Victoria Square, Adelaide. Australia has caught onto the trend of building taller in timber, with other plans for three buildings 180-220 metres high submitted in Perth and Sydney. These would more than double the current world record for a timber building.

Tall timber buildings, made entirely of mass timber (layers of wood bonded together) or steel-timber and timber-concrete hybrid construction, are gaining popularity worldwide. Every couple of months a yet taller timber building seems to pop up somewhere. My colleagues and I joke that we have stopped trying to keep up.

Timber is a sustainable, renewable material that stores carbon while in use, and the appeal of using it in skyscrapers is clear. But I worry that focusing only on the tall means we overlook the “middle”: apartment buildings, hospitals, schools and shopping centres. Buildings like these are dominated by concrete, steel and brick, all of which are carbon- or energy-intensive materials.

The “middle” is not sexy, and probably won’t make the news, but it’s where timber construction can have a significant sustainability impact.

A 2017 study found Australia’s construction sector is responsible for 18% of the country’s carbon footprint. Current emissions are expected to double by 2050 if we don’t change the way we build.

Change is challenging. Developers and designers favour familiar construction materials and methods where cost estimates are straightforward. Timber requires a change of thinking and early contractor involvement to be cost-competitive.

But if we truly want to do something about our nation’s carbon footprint, the whole construction industry urgently needs to shift, with Australian government support, towards renewable, low-carbon construction materials and methods. This means to build with timber if we can, use steel and concrete if we must.

Timber technology is transforming construction

The Australian timber industry has embraced mass timber such as glue-laminated timber (glulam or GLT) for beams and columns, and cross-laminated timber (CLT) for panels. Mass timber is more homogeneous than sawn timber, resulting in higher strength, and allowing us to build taller than ever before. Australia’s third CLT plant is set to open in 2023 in South Australia.

Globally, timber has reached new heights over the past 15 years. Noteworthy projects include the University of British Columbia’s Brock Commons student accommodation, 53 metres high and made of mass timber and concrete. The tallest timber building until recently was the 85-metre-high Mjøstårnet in Norway, made entirely of CLT and glulam. It lost its title to Ascent, an 86-metre, 25-storey, timber-concrete tower in the United States.

In comparison, Australia’s tallest buildings to date reach a mere ten storeys. Australia’s “first” was Lendlease’s Forté Melbourne, a CLT apartment building finished in 2013. Aurecon’s 25 King Street in Brisbane was Australia’s first open-plan office building, 52 metres high and made entirely of mass timber.

Another interesting “tall-ish” timber building is Monterey Kangaroo Point luxury apartments in Brisbane. The developers Gardner Vaughan opted for a relatively lightweight solution of CLT and a single concrete core, as the building stands above the Clem Jones Tunnel.

Australia is determined to go tall in timber. The University of Queensland’s Future Timber Hub is studying how to build taller timber buildings, including extensive research on fire safety. Better understanding of fire behaviour has driven a change in legislation, lifting height limits on timber buildings, and boosted developers’ confidence to plan much taller buildings.

Building tall in timber is an art, technically challenging, and exciting for engineers and architects alike. I know this since I researched the seismic design of connections in tall timber buildings for my PhD. I am still involved in tall timber research with the Council for Tall Building and Urban Habitat, and European research on the Holistic Design of Taller Timber Buildings.

And what’s not to love about timber? It practically grows itself, stores carbon in durable wood products, can be cascaded into other timber products, and used as fertiliser for sustainable forests at the end of its life.

But building taller and taller timber buildings alone isn’t the answer to the climate crisis.

In 2011, Forest and Wood Products Australia (FWPA) reported on the opportunities and constraints of timber construction. Its report identified multi-residential, educational and office buildings as having the biggest potential for building with timber.

Almost all of these buildings are still being constructed out of concrete and brick. Despite efforts to make both materials “greener”, their production currently consumes vast amounts of non-renewable resources and emits a lot of carbon.

So what’s stopping us?

FWPA’s report identified the biggest problem as a lack of timber construction expertise. This is not surprising, since Australian universities offer hardly any timber courses.

The University of Tasmania offers a graduate certificate in timber design for professional engineers. The University of Queensland is the only other Australian university offering a dedicated timber design course to structural engineering undergrads.

In response to the construction industry’s lack of timber knowledge, WoodSolutions, the educational branch of FWPA, has been running an entire mid-rise advisory program. It allows those exploring mid-rise timber solutions to get free information and advice from a group of experts.

Advancing structural timber engineering education is only one piece of the puzzle. We also need a shift of mentality to move past the idea that timber can only be used in detached single-family homes. In fact, we need to move away from such homes altogether. The federal HomeBuilder grant scheme led to a nation-wide timber shortage and added to urban sprawl.

Instead, we need to embrace well-built, mid-rise apartment buildings made from engineered timber. This material can safely use lower-grade wood and take the pressure off timber supplies.

And why stop there? We have the tools and the knowledge to build high-performance timber buildings. Proper design and detailing can slash energy bills.

Tall timber buildings are exciting, and we shouldn’t stop dreaming tall, but we need to focus on the missing middle to make construction sustainable.

This article was originally published on the Conversation.

Building for the future: opportunities and challenges in construction

Duncan Clubb is a Partner in the Business Restructuring Division of BDO Sydney. Charles Haines a Director at BDO Australia. Charles Haines is a Director in BDO’s Advisory team in Brisbane. Both Duncan & Charles bring a wealth of experience and knowledge which inform this analysis of Australia’s construction industry.

Turbulence or turmoil?'

The construction industry is one of Australia’s biggest sectors, but primarily due to COVID-19, the sector’s performance has been turbulent over the past two years. The 2020-21 financial year brought in $424.1B in revenue, but this is still a decline of 5.7 per cent on the previous financial year. Of this revenue, only $34.4B was profit (a fall of 3.1 per cent) and profit margins were as low as 8.1 per cent (a fall of 1.3 profit percentage).

While these figures have been exacerbated by COVID-19, the construction industry has always been tumultuous – with low profit margins, labour instability, and a high dependency on construction loans. These issues all contribute to why the construction industry accounts for almost 25 per cent of all insolvencies every year.

Construction demand consistently outpaces both supply for labour and raw materials, and is further worsened by global supply chain issues which have caused delays in projects, and added to construction costs. CoreLogic’s Cordell Construction Cost Index (CCCI) for Q1 2022 showed national residential construction costs increased nine per cent over the 12 months to March 2022, a rate of cost increase which would erode most of the profit on a residential building contract.

In the first two quarters of 2021-22, there were severe lockdowns in Melbourne and Sydney, as well as limitations on the number of workers allowed to operate onsite at any given time. This resulted in the partial or complete termination of some projects. These impacts proved difficult in an industry which depends on loans and timely project completion.'

The Homebuilder Scheme

In an effort to reinvigorate the construction industry and stimulate the domestic economy, the Federal Government announced the Homebuilder Scheme, but some believe this scheme may have caused more harm than good.

Since the announcement of the scheme on 4 June 2020, there have been almost 140,000 applications, resulting in huge numbers of approvals for new dwellings and scheme compliant renovations.

Despite customer numbers almost doubling, the number of building companies, skilled labour and materials did not. This ultimately resulted in delays to construction start dates and longer build times.

This subsidy-driven increase in demand resulted in building companies experiencing a significantly different risk profile, as elevated numbers of ongoing building projects increased their exposure to the market. This occurred at such a rate that their financial robustness (balance sheet strength) did not have time to catch up and develop sufficient reserves to buffer them against any potential pressure associated with this increased activity (i.e., margin pressure).

While unforeseen international events have certainly impacted the industry, it was foreseeable that:

  • Such sudden and dramatic increase in local demand would lead to cost pressures on labour and raw materials

  • Other countries would attempt to reinvigorate their economies through the construction industry – placing greater strain on international supply chains

  • The impacts of COVID would be ongoing, even if those impacts were unknown and not quantifiable.

Aftershocks and secondary impacts

A year can make a significant difference in a global supply chain environment. In construction, where residential contracts are almost always fixed price and the party bearing the risk is the builder, the impacts of a company failing can be felt on a wider scale than some other industries.

These wider impacts may affect suppliers providing goods on credit, employees that may be owed superannuation and/or other entitlements, homeowners who may lose their deposit or experience indefinite delays to the completion of their homes, and state-based home warranty schemes that need to investigate and support the homeowner’s claim.

The past year has unfortunately provided no relief to the construction sector, with the industry facing the consequences of adverse weather conditions on the Eastern seaboard of Australia, supply chain issues such as the slowdown of steel manufacturing in China, tariffs of 35 per cent being imposed on Russian and Belarusian Engineered Wood Products (which comprise of approximately 40 per cent of Australia’s EWP imports), and on-going wage growth in the sector coupled with rising interest rates.

As a result, there has been a profitless boom in the construction industry which has led, and will continue to lead, to an increase in the number of insolvencies in the sector.

Navigating these challenging times

Some of these impacts were foreseeable, others were not - making them difficult to plan for. However, we suggest that construction businesses consider the following measures to reduce the adverse effects:

Measure twice, cut once

The concept of ‘measuring twice, cutting once’ is as applicable to project budgeting as it is on the construction site. Builders should ensure that their budgeting process is rigorous and based on current pricing for both labour and materials. Builders are also advised to budget for future price increases, based on the anticipated completion date of the project.

Know your suppliers

While it is often easy and preferable to use cheaper suppliers, it’s important to consider suppliers with a reputation for timeliness and quality. The cost of delays when obtaining key materials can often be far greater than the savings of going with the cheapest option.

Build your relationships

Relationships are more important than ever. Consider who you are doing business with – is it the right time to start new business relationships, or to continue with those you trust and can rely on?

Seek help early

If you are facing challenges in your business, reach out to your trusted adviser and engage with key stakeholders. The pressures you are facing are likely not isolated to your business, but industry wide.

This article was originally published on BDO Australia. Access it here…

The New Order Cometh: Rise of the Millennials

Dr Ameeta Jain is the Course Director of undergraduate programs at Deakin University. Ameeta is a passionate educator with more than 15 years of experience in lecturing in property, economics and finance units. She has led the development and enhancement of various courses. Ameeta's research centres around issues of sustainability and resilience in regions as well as property markets.  She has obtained government funding for projects aligned with the United Nations Sustainable Development Goals as well as industry funding to evaluate the resilience of housing markets. She has published in highly ranked national and international peer-reviewed journals as well as media pieces.

The 2021 Census data released in June 2022 reveals that for the first time Millennials (25-39 years old) have caught up with the Baby Boomers (55-74 years old) in terms of numbers. In comparison with the 2011 census, Baby Boomers decreased from 25.4% to 21.5% of the population whereas Millennials increased from 20.4% to 21.5%. This decline in the importance of the Baby Boomer generation as the dominant force in the residential real estate market is likely to change the demand profile for housing across Australia.

Natural attrition due to death, and increased age of the Baby Boomers means that firstly there is likely to be an increase in the sale of deceased real estates over time. Secondly, demographers theorise and hope that Baby Boomers will increasingly be looking at rightsizing (smaller house size but similar budget) where the empty nesters consider moving inner city to a smaller house with a holiday house thrown into the mix. At this time, there is no financial or other incentive for Baby Boomers to sell their family homes and move. On the contrary, there are downsides to selling a valuable family home, with both financial and non-financial penalties. These include loss of friends, environment and neighbourhood, sale proceeds reducing aged pension and other benefits, and loss of amenities. None of these non-financial considerations has been addressed by government policy. Given that Baby Boomers own more than half of the residential real estate in Australia, appropriate policy measures to wean them from their family homes and to move to more appropriate (in terms of size) housing are required. It would be presumptuous to assume that Baby Boomers comprise a homogenous group of well-off retirees. Like in other generations, this cohort comprises many who will continue to work for myriads of reasons well past 65, some do not even own their houses, others are a part of the sandwich generation, caring for their parents from the silent interwar generation and their own children/grandchildren. These confounding factors, along with many others, keep housing markets operating inefficiently in the eyes of theorists and policy makers. 

Opportunity for Millennials: maybe not

On the face of it, the power of increased numbers is supporting the Millennial generation in their quest for increasing home ownership. Prior studies demonstrated that the Millennial generation wants their housing to reflect their changing lifestyle, ethos and values: large master bedroom, en-suites, modern interiors, energy efficiency, bigger kitchens, low maintenance living and location all at the right price. This is different from the requirements of the Baby Boomer generation previously: smaller houses with bigger yards, dated interiors and exteriors. This is reflected in the current housing stock in Australia held by Baby Boomers. However, when Baby Boomers rightsize, they may well be competing with Millennials for the same properties.

Some studies have shown that Millennials are increasingly looking at innovative methods for getting their foot in the property market: buying affordable housing to rent out and renting in their preferred area (rentvesting); buying as a part of a property syndicate; or buying with friends and family. 

Where to from here?

In the ideal world property markets would be completely efficient and follow ideal theoretical constructs, ensuring that Baby Boomers would downsize as soon as society regards that they should, and the next generation move into established family housing. However, reality is very different. There needs to be a policy shift by federal and state governments recognising that the Baby Boomer generation is unlikely to give up their hard-earned wealth (despite all arguments to the contrary). Unless it can be ensured that the Baby Boomers will not be financially worse off by rightsizing or downsizing, there is unlikely to be any significant increase in Millennials owning more properties. Even in the presence of appropriate policy measures, non-financial factors preventing Baby Boomers from giving up their family homes will prevent a complete handover of existing housing stock from the Baby Boomers to the Millennials. This complex problem requires governments to not just provide Baby Boomers with the option to rightsize/downsize without financial penalty, at the same time developing innovative policies and programs to help millennials to buy into the residential property market.

Embodied carbon: What’s happening globally and why must Australia get ready?

Tom Dean is the Director of Carbon Planning at Slattery, and is one of the nation’s leading Quantity Surveyors. Tom has been instrumental in shaping Australia’s property landscape, and led the development of Australia’s first carbon planning service, which is now endorsed by GBCA and MECLA. Tom gives insight into how the construction industry can better achieve net-zero objectives through policy and innovation.

As global regulation shifts gears and more countries begin to measure and manage construction’s embodied carbon emissions, the signposts show Australia what’s ahead on the road to net zero.

According to the World Green Building Council, buildings are responsible for 39% of global carbon emissions: 28% generated during the operational phase to heat, cool and power them, and the remaining 11% from materials and construction [1].

The property and construction industry has focused on that 28% by reducing operational carbon emissions through more energy efficient design, smart building technology and behavioural change campaigns.

As operational energy consumption decreases, the remaining 11% – known as embodied carbon – is expected to become the dominant source of greenhouse gas emissions.

The Green Building Council Australia (GBCA) estimates embodied carbon emissions could be responsible for 85% of the built environment’s carbon emissions by 2050 [2].

Targeted action to reduce embodied carbon emissions is therefore crucial for Australia to meet its net zero emissions target by 2050 [3].

Mandates gain momentum

Regulation of embodied carbon in the built environment is gaining momentum. Embodied carbon assessments are being incorporated into planning, building and procurement requirements in a growing number of countries around the world [4].

The New Zealand Government recently released its Emissions Reduction Plan, for instance, and is expected to introduce reporting requirements and caps for embodied carbon and operational emissions in new buildings.

In France, a new embodied carbon emissions policy, which came into force on 1 January 2022, dictates embodied carbon caps for different building typologies. By 2031, all new buildings in France will have an embodied carbon footprint 52% smaller than in 2022 [12].

The Netherlands, the first country to impose mandatory embodied carbon assessments for non-governmental buildings, has required new residential and office buildings over 100 sqm to submit embodied carbon reporting as part of the building permit application process since 2018. The Netherlands also has a national environmental product declaration database, a standardised method for whole building lifecycle assessment, and several software tools that follow the standardised method [13].

And then, in the United States, several federal and state government administrations have implemented low embodied carbon procurement policies. These initiatives aim to drive change within the supply chain and accelerate the development and availability of lower carbon materials to the wider market.

New York City, for instance, is currently targeting 40% less embodied carbon by 2030 and net zero embodied carbon by 2050 for new buildings, infrastructure and renovations projects.

Signposts point in one direction

These national commitments are just five signposts of dozens that point us to the future for embodied carbon measurement and management. But where does Australia stand?

With no mandatory regulations for embodied carbon measurement, reporting or reduction, Australia is currently lagging many international peers. The recent change in federal government has elevated environmental priorities, and we expect to see regulation on embodied carbon emissions introduced within the next few years.    

With funding from the NSW Government, the National Australian Built Environment Rating System (NABERS) is currently developing a new framework to measure, benchmark and certify embodied carbon from building materials and construction. This framework is due to be finalised in the next 12 to 18 months. The framework is intended to roll out nationally as a voluntary rating for commercial buildings, with the potential to enable mandatory planning policy in the future [26].

The Green Star Buildings rating tool, released by the GBCA in 2020, includes upfront embodied carbon reduction criteria for the first time. These criteria will become more stringent over time, and by 2030 all Green Star certified buildings will need to demonstrate at least 40% less upfront embodied carbon emissions when compared to a reference building.

So what can Australia’s construction industry do now?

Australia, as a signatory to the Paris Agreement, has committed to net zero carbon emissions by 2050. The construction industry currently accounts for approximately 25% of all greenhouse gas emissions in Australia – which puts it on the front line of action [27]. A net zero carbon future is only possible if we tackle embodied carbon.

The World Economic Forum's 2022 Global Risks Report finds “climate action failure” is now the biggest global threat and that a disorderly transition to net zero looms. Australia’s property and construction industry, backed by government, can take strategic steps now to support an orderly transition to net zero.  

The first strategic step to tackle embodied carbon is to establish a national industry-agreed methodology and framework for measuring and reporting embodied carbon. This would ensure that meaningful comparisons can be made between projects. NABERS is developing this framework in collaboration with industry stakeholders including Slattery.

Secondly, embodied carbon targets, thresholds or caps are likely to be set based on industry benchmarking data. Over time, these targets will be tightened to deliver increasing emissions reductions while driving design efficiencies and material innovations. Embodied carbon emissions targets will likely then be mandated or incentivised by government.

Finally, the new Albanese Government can look at applied policies abroad to guide Australia’s embodied emissions policies and to guide an orderly transition toward a decarbonised construction industry.

The bottom line? Companies that begin to measure the embodied carbon in their projects now will upskill their workforce, drive a shift in culture and get ahead of inevitable regulation. 

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Construction industry collapses are caused by the wrong builder, not the wrong contract

Andrew Schwartz is the Co-Founder and Managing Director of investment management group Qualitas. Andrew oversees the firm’s activities, particularly concerning improving strategic direction and relations with clients and investors.

Covid and its associated lockdowns and supply chain blockages have been tough on Australia’s property construction sector. An inability to source labour and materials has resulted in steep rises in costs and substantial project delays, which have wiped out margins and in recent months driven some of the industry’s highest-profile names to the wall.

Around the country, there is heightened anxiety regarding unfinished residential and commercial projects, developers considering alternative builders, subcontractors and tradies waiting to be paid, and would-be homeowners and investors wondering what this means for the apartment they’ve bought off the plan.

The industry is also looking for answers. Why has this happened? And what can be done to prevent it happening in the future – beyond preventing global pandemics?

It’s no surprise that attention has turned to Australia’s preference for Design and Construct contracts. There are suggestions we should look to the US, where D&C contracts are far less common and developers, not builders, take on more of the risk and responsibility of a new development.

Superficially, that may appear attractive. Surely developers should be more responsible? But it would be a serious mistake. D&C contacts have served Australia well through multiple property cycles and remain the best option for allocating risk and incentivising project completion, quality and innovation in design.

In Australia, there are several types of commercial contracts for large residential projects – our focus for this article, although it’s the same situation with commercial projects. There’s a construction management agreement, with no fixed price and much of the cost risk and design risk borne by the developer. There’s a gross maximum price contract, which is a better option for developers although they still carry design risk. And there are D&Cs with a gross maximum price (GMP) or a fixed price.

The principal benefit of D&C GMP contracts, which are by far the most popular for larger projects, including large-scale infrastructure projects, is that the many risks are assigned to the maximum extent possible to the one party best able to manage them – the major contractor or builder. A D&C contract makes it clear that the builder is responsible for the delivery and construction of the project in accordance with the detailed design plans.

The reason for this approach is to reduce the risk of disputes and litigation between the many parties to a major project – the developer, the financiers, off-the-plan purchasers, the head contractor and their subcontractors, the multitude of design, engineering and planning consultants and the surveyors.

Effectively, all roads lead back to the builder. If there are any problems – the project is late, there are cost blowouts, pre-sales fall over because there are design faults, there are warranty claims after completion – it is the builder’s responsibility to deal with it. There is a direct and central point of liability in the event something goes wrong.

This makes D&C contracts attractive and fundamental from a financier’s point of view. But it also highlights why the financial strength, experience and track record of the builder is paramount in any project.

The key argument against D&C contracts, which has gained currency with the spate of recent collapses, is that they remove the responsibility from the developer because they have passed all the risks to the builder. This betrays a misunderstanding of the role of developers and the amount of skin they have in the game.

In Australia, the funding of costs for a major residential project is typically 70 per cent debt – from a bank or, increasingly, from alternative lender – and 30 per cent equity from the developer. The developer will also be eyeing a 20 per cent profit margin. On a $200m development that’s up to $100m of at-risk equity and profit, so it’s nonsense to say developers are not motivated to deliver a successful project on time and on budget.

In the US, where D&C contracts are rare and prohibitively expensive, a developer typically has even more skin in the game but there are significant downsides, particularly when something goes wrong.

Unlike Australia, in the US more of the risk emphasis is placed on the developer and the strength of their guarantee to the financier, as opposed to the contractor’s guarantee. This results in a substantial shifting of risk away from the contractor to the developer. It results in the dilution of the risk matrix.

In the US, the equity risk is so profoundly different to that in Australia that equity raisings have complicated tiering structures of differing risks depending on which tier of equity you subscribe to. It’s a complicated and inferior system to that in Australia where all roads lead to one party being the contractor – the party that actually did the work and had responsibility for all other subcontractors and consultants.

In the litigation capital of the world, you can imagine the outcome in the event of a problem with a project. Without the single point of liability under the D&C system, everyone blames everyone else and lawsuits fly.

Doing away with D&C contracts in favour of such a system is simply not the answer to the current problems facing the construction sector. It would introduce greater risks for developers, financiers and, ultimately, for homeowners and investors. In addition, by requiring developers to put up more equity to cover increased risks, it would lead to higher development costs and higher apartment prices that would only exacerbate the current housing affordability issues.

The current problems in construction are not about the wrong contract. In most cases where there is failure, it’s about developers choosing the wrong builder. You may have the best-in-class suite of contracts and risk assessments, but you need the appropriate builder to execute according to the terms of the contract.

As a financier, before we put up any funding we naturally assess all the risks and returns of a project.

One of the most important considerations is the scale and quality of the builder, specifically whether they have the experience and balance sheet to carry out a particular project and cover the financial burden of any problems that emerge.

The temptation in a climate of rising costs – including the cost of capital – is for developers to look for cut-price construction options, including taking on cheaper but riskier GMP contracts without a D&C component. The more inexperienced the developer, the more likely they are to run into problems managing the D&C components with the builder, leading to cost blowouts and delays. Even with a D&C GMP contract, the lowest bid is typically from the lowest-capitalised, least experienced builder. In a costs crunch, as we’ve seen through Covid, they will be the first to fail.

We have one of the best contractual arrangements anywhere in the world, designed to ensure a clear pathway of responsibility to contractor. The D&C contract attributes responsibility for the design of the building, the structural integrity, performance, and warranties with the builder. There is no gap for error – unless you choose the wrong builder due to an incorrect assessment of their financial capacity.

How are circular economy principles taking hold in real estate?

JLL is a world leader in real estate; buying, building, and investing in a variety of assets including industrial, commercial, retail, residential and hotels. The company gives insight into how greening goals are being imagined in real estate.

Leading cities are now setting goals to tackle carbon throughout a building’s lifecycle…

Decarbonizing cities will take more than cutting carbon emissions from buildings operations.

As cities commit to ambitious net zero targets, the most progressive among them are now considering how they can better plan building lifecycles, from construction to maintenance and ultimately, demolition. The construction industry is the world’s biggest producer of waste. In the EU, construction and demolition waste accounts for approximately one-third of total waste, and around 40 percent of solid waste in the United States.

That needs to change – and quickly – if cities are to achieve a net zero future. It’s why circular economy thinking, which aims to eliminate waste, is growing in popularity. It has profound implications for decarbonizing cities because it factors in whole-life emissions – the carbon generated by producing and transporting materials through to their use and disposal.

“Circular economy principles are about preserving the value of assets by embedding zero-waste thinking early in the lifecycle and designing with reuse or repurposing in mind,” says Cynthia Curtis, SVP and Corporate Sustainability Officer, Americas at JLL. “They redefine the concept of waste, recognizing the value in the materials. Reducing the carbon emissions of planned new buildings can significantly help the transition to net zero.”

However, that’s only part of the solution. In North America and Europe, for example, around 80 percent of buildings that will be in use in 2050 already exist today and will fall far short of future carbon reduction targets. Yet knocking down an old building to build a new, greener building, is not an effective approach.

“Retrofitting older buildings is so important; the carbon has already been spent in creating that structure,” adds Curtis. “Through reuse and repurposing, the spent carbon can be leveraged more efficiently.”


Regulations on the horizon

Incoming regulations in major cities are increasingly front of mind for developers. Amsterdam will halve the use of new raw materials by 2030 on the road to being fully circular by 2050.

Los Angeles is aiming to be the largest city in the U.S. to achieve zero waste, targeting a 90 percent landfill diversion rate by 2025, while Melbourne is also on a similar path. 

Paris, which wants 50 percent of construction sites to send no waste to landfill by 2030, is leading the way with Design for Reuse Principles. These encourage developers to focus on projects that can accommodate different functions over time – housing, offices, hotels – without the need for renovations or major upgrades. By 2030, 30 percent of its office stock will need to be adaptable.

“The principle of reuse has a much wider context than simply decarbonization – it’s about being able to respond to changes in the future of work or in social patterns,” says Jeremy Kelly, Global Research Director, City Futures at JLL. “It addresses how the value of assets can be maximised over the long term, and how our building stock can be better managed.”

New materials drive progress

Ongoing shortages of construction materials have also contributed to a growing awareness of the need for circular principles in real estate. 

“We’ve seen a significant increase in client inquiries about waste management strategies,” says Curtis. “Waste reduction is a direct precursor to a circular economy because the most effective method is to design for reuse at the outset.” 

At the same time, there’s a growing range of reusable materials supporting circular construction, such as Cradle to Cradle (C2C) products that can be returned to manufacturers for repurposing.

Carbon-negative materials including mycelium insulation and certain bioplastics remove carbon from the atmosphere during production. Innovations in manufacturing have also led to carbon-neutral concrete and lower-carbon steel.

A new generation of sustainable developments are spearheading such products. Amsterdam’s mixed-use Park 20|20, which features one of the world’s largest collections of C2C materials such as reusable structural frames, is one of the protagonists.

In Hamburg, Landmarken AG is currently building Germany’s first residential complex where more than 50 percent of materials were selected with reuse in mind – and many are Cradle to Cradle certified. Schemes like London’s Whole Life-Cycle Carbon Assessment and Paris’ RE2020 will encourage more such developments in the coming years.

“Cities with regulations to encourage considerations of whole-life carbon and building adaptability see greater traction more quickly,” says Curtis.

Regulation lags market forces

Despite the headline actions of leading cities, legislation is lagging in many others. Market pressure from businesses who increasingly seek low-carbon, low-waste spaces is having a greater impact, says Kelly.

One challenge is that the cost of circular design can initially be higher, but it can cover several traditional building lifecycles.

The lack of financial incentives, education and regulatory guidance can also make it more difficult for businesses to adopt a circular mindset, notes Curtis, holding back the industry-wide change necessary for circular construction.

“The building lifecycle involves many players – investors, developers, architects, manufacturers, contractors and suppliers,” says Kelly. “To embed circularity in this complex value chain requires much deeper collaborative business models. And we need this transition to drive the sustainability progress that’s paramount for the built environment.”

This article was originally published on JLL’s website, read it here

Melbourne Housing Market – Demand and Supply Outlook

Richard Temlett is an Associate Director in Charter Keck Cramer's Strategic Research department. A former lawyer, Richard exercises an evidence-based approach when validating investment and development decisions. Richard gives insight into how the divide between supply & demand will affect Melbourne housing over the next few years.

COVID-19 has caused a substantial demand-side shock to the Melbourne housing market. There is likely to be a mismatch between supply and demand over the next 2-4 years and this will be exacerbated by rising construction costs and increasing interest rates. 

Introduction

The Australian economy has undergone significant disruption as a result of COVID -19 through 2020-2022.  On balance however, the economy has performed far better than expected at the commencement of the pandemic and this is due to an unprecedented level of monetary and fiscal policy stimulus provided over 2020 and 2021. 

The demand-side shock caused by COVID-19, as well as the monetary and fiscal stimulus, has had a substantial impact on the demand for and supply of housing across Australia and Melbourne. Some of the impacts as they apply to the Melbourne housing market are highlighted below. 

Demand-Side Impacts

It is important to keep in mind that population growth drives the demand for additional and diverse forms of dwellings and has been a major driver of the Melbourne housing market over the last two decades.

In the period prior to COVID -19, population growth was extremely strong in Victoria (peaking at 150,000 p.a) and Melbourne (peaking at 130,000 p.a).  COVID -19 has had the greatest impact on the inner-city apartment market in Melbourne due to this sub-market’s large reliance on migrants and students. Population growth in Victoria has fallen to a negative 44,700 in FY 2021 whilst population growth in Melbourne has fallen to a negative 49,000 in FY 2021. 

On a positive note, population growth is anticipated to return to both Victoria and Melbourne from 2023/24 onwards as the State and City are still very attractive places to live.  Charter notes that Victoria will be the fastest growing State in Australia from 2023/24 and Melbourne is forecast to be larger than Sydney by 2029. 

Supply-Side Impacts

The chart below shows the building activity of new dwellings across Melbourne for the period March 2003-March 2022. Building approvals are an indicator of future supply of dwellings to enter the market and it is important to understand in more detail which types of dwellings are being delivered across Melbourne. 

New dwelling activity peaked between 2016-2018 and was driven by the local and overseas investor markets during this time. Prior to COVID -19, there was a strong decline in supply (underpinned by reduced releases) as the market adjusted to increased policies targeting local and overseas investors, overarching market softening created by the uncertainty of the Banking Royal Commission as well as the Federal Election.

Charter observes that the detached housing market has been the primary beneficiary of the unprecedented monetary and fiscal policy response over 2020 and 2021 in response to COVID-19. This was because the various incentives (particularly Homebuilder) had construction commencement timing requirements that the detached housing market was able to meet.  

The apartment market, for the most part, was not able to take advantage of these incentives and also was at the disadvantage of relying on investors (both local and foreign) to support presales prior to many projects obtaining construction finance.  Investors were initially more cautious at the commencement of COVID -19 although they have entered the housing market over 2021 and 2022. 

Prices

The chart below shows the median house and unit (townhouses and apartments) prices across Melbourne for the period March 2005-March 2022. Established house prices are a reflection of the demand / supply balance and set the context in which more affordable dwellings such as townhouses and apartments can feasibly be delivered in a market. 

Melbourne’s median house price rose by +66% between June 2012 and its peak of $903,000 in December 2017.  Following a softening across the market the median house price recorded a new peak of $1,076,800 as at March 2022. The median unit price recorded $659,100 as at March 2022 and represented a -39% discount to the median house price.

As highlighted above, the Melbourne housing market recorded significant price growth as a result of several factors including the COVID-19  related monetary and fiscal policies.  Between June 2020 and March 2022 median house price growth was recorded at +24%.  Median unit prices have recorded robust price growth although not to the extent of that recorded across the housing market (+13% growth).

Charter notes that unit prices track house prices. If one dwelling type increases or decreases in value, the market does recalibrate and the other dwelling type will subsequently increase or decrease in value. The gap between house and unit prices is currently extremely large and it is anticipated that in various sub-markets there will be price growth in units in Melbourne over the next 12 months. 

Construction Costs

Charter has considered the price indices of residential housing across Melbourne to understand the change in prices across various materials used in the construction of housing. 

Price increases across various items are the highest since the introduction of the GST in 2000 (or in some instances since the GFC in 2008/2009). This has led to an overall increase in costs across Melbourne (across all price groups tracked by the ABS) of +15.4% since the start of COVID-19.

Charter’s investigations with the industry suggest that to date revenue increases in the greenfield markets have been greater than cost increases and these costs have been able to be passed on to the purchaser in the form of higher prices. This is not the case in the medium and high-density space where revenues have not increased as much as costs and projects are no longer feasible.

Finally, industry sentiment is that house building costs will increase by around another +10-15% over the next 12 months and there is tremendous uncertainty with respect to the impact of China's COVID-zero policy, as well with the war in Ukraine.

Outlook

There is a lot of uncertainty in the housing market at present. Some of the key local factors causing this uncertainty and negative sentiment include rising interest rates, increasing construction costs as well as inflation whereas the global factors include the war in Ukraine, the Chinese Covid-zero policy and Global inflation.

The figures outlined in this article show that demand (both renter and buyer) will return in large numbers from 2023/24 whilst the supply of dwellings is slowing (and is likely to slow even further) over the next few years. It is important to keep in mind that supply takes time to mobilise and will not be able to quickly respond to returning demand. 

This presents both risks and opportunities across various sub-markets of which developers, financiers, investors, owner-occupiers and renters need to be aware.

Swapping stamp duty for land tax would push down house prices but push up apartment prices, new modelling finds

Professor James Giesecke is the Director of the Centre of Policy Studies at Victoria University, where co-author Jason Nassios is an Associate Professor. James has has published over fifty papers in peer-reviewed journals, and has over twenty-five years of experience applying economic models to diverse domestic and international public policy questions through contract research engagements with government.

In Tuesday’s budget, NSW will announce a switch from stamp duty to land tax.

It will become the second Australian jurisdiction to do so, with the ACT halfway through a 20-year switchover.

Homebuyers who accept the offer will be taxed annually on the value of their land, instead of hit with an upfront fee (that averaged $50,000 for Sydney in 2018) when they buy.

Once they have accepted, their property will be out of the stamp duty system and subject only to land tax for future owners.

It’s become conventional wisdom to say that such a revenue-neutral switch would boost productivity.

Why? Moving house sets in motion a chain of transactions: residents engage lawyers to transfer titles, real estate agents to manage the property sale, removalists to transport possessions, and so on.

Stamp duties compound these costs, by adding a significant, additional layer of taxation, which in some states makes up 80% of the total cost of moving house.

Land tax, in contrast, is one of the least-damaging taxes. It encourages land owners to put land to its highest-value use.

In a landmark modelling exercise completed this month, my team at the Victoria University Centre of Policy Studies finds that the productivity gains are large by the standards of tax swaps.

After 20 years, replacing stamp duty with a land tax would boost national income by A$0.30 for each dollar of revenue swapped, or up to $720 per household if implemented Australia-wide, about 0.34% of annual gross domestic product.

Of greater interest for homeowners and buyers is what it would do to prices.

Houses versus apartments

Broadly, we find that the switch would put downward pressure on prices, but not for every type of home.

Apartments are different. Shutterstock

Across the market as a whole, we expect downward pressure on the price paid by buyers of about 4.7%, and downward pressure on the price received by sellers of about 0.1%.

But for houses, we expect much stronger downward pressure than the average suggests.

We expect the price paid by house buyers to fall by about 7.6%, and the price received by sellers to fall 3%.

Interestingly, for apartments we expect movements in the other direction, pushing up the price paid by buyers by 2%, and pushing up the price received by sellers by 6.4%.

What’s so different about apartments?

Why would the switch put downward pressure on the price of houses but upward pressure on the price of apartments?

It is because of how two offsetting effects play out.

One is that higher land taxes depress land prices. Buyers who know they will be lumbered with future bills find their purchases less valuable. This effect is much bigger on house prices than apartment prices, because houses occupy more land on average.

The other effect is that removing stamp duty not only removes an impost on the current buyer, but also removes an impost that will have to be paid when the current buyer sells, and when the subsequent buyer sells, and so on, making resale more valuable to the current buyer than it would have been.

For properties that aren’t turned over often this effect isn’t very important, but for properties that are turned over frequently, it becomes significant.

Apartments are turned over twice as frequently as houses, meaning that for apartments the upward effect on prices from removing stamp duty overwhelms the downward effect from imposing land tax.

Much depends on exactly what’s proposed

It would be possible to lessen this upward pressure on apartment prices by imposing higher land taxes on higher density housing, an idea canvassed by the Henry Tax Review in 2010. Planning and zoning rules could also play a role.

Other policy design decisions could have other effects on prices. Our modelling is based on an immediate swap of stamp duty for land tax.

This is not the same as the NSW government’s opt-in proposal, which could have different price consequences to the policy we modelled.

The NSW government is also reported to be considering excluding the most expensive 20% of properties from the switchover, so it can continue to collect stamp duties on high-value transfers.

In future work we plan to extend our modelling beyond a simple swap of stamp duty and land tax.

This article was originally published on the Conversation. View it here…

Hybrid working post-COVID: how young professionals can optimise their time in the office (and why they should)

Gemma Dale is a lecturer in the Business School at Liverpool John Moores University and runs her own business ‘The Work Consultancy’, where she focuses on HR policy development, flexible and hybrid working and wellbeing. Prior to joining LJMU, Gemma was a HR Director and worked in a variety of senior HR roles for over twenty years. Gemma was nominated in the Top 50 'Most Influential Thinkers in HR' list 2021.

During the pandemic, around 100 million people in Europe switched to working from home – nearly half of them for the first time. This shift was rapid, with employees quickly noticing the benefits of remote work. These can include freedom from commuting, more time for personal wellbeing and increased productivity.

As we move on from pandemic restrictions, we’ve seen a strong, global demand for more flexible forms of working, particularly to retain an element of remote work. While some employees want to work from home permanently, most want what’s coming to be regarded as the best of both worlds: hybrid working. Only a minority of workers now want to return to the office full time.

One group which may be particularly keen on hybrid working is young professionals. And for this group, time spent in the office could be especially valuable.

Young people and remote work

Surveys undertaken during the pandemic indicated that generation Z (those born after 1996) were more likely to say that they were struggling with work-life balance and post-work exhaustion than older generations.

There are several possible reasons for this. Younger people may find it more difficult to establish a good homeworking set up, depending on their living arrangements. Those early in their careers may have smaller professional networks, leading to greater isolation. Or they may simply have less experience managing the boundaries between work and life outside of work, which can be made more difficult when there’s no physical office to leave at the end of the day.

Despite this, emerging evidence suggests that younger workers want remote and flexible work rather than a return to the office full time. Surveys vary, but generally indicate that around two-thirds of members of generation Z working in office jobs want a hybrid working pattern in the future – and they’re prepared to move employers to find it.

According to a recent survey by management consulting company McKinsey, employees aged 18–34 were 59% more likely to say they would quit their current role to move to a job with flexible working compared with older employees aged 55–64.

It’s worth going into the office sometimes

Remote and hybrid working can bring many benefits. For employees, remote work provides the opportunity to reallocate costly and sometimes stressful commuting time into activities that support work-life balance and health. Indeed, more than three-quarters of hybrid and remote workers report improved work-life balance compared with when they worked in an office full time.

Meanwhile, hybrid work provides autonomy and choice for employees. They can combine time at home for focused and independent work with time in the office for collaboration and connection. A hybrid working model can be good for productivity, inclusion and motivation.

However, the belief that work is best done in an office environment is pervasive – and young people in particular are thought to need to go into the office to build professional networks and to learn.

There could be some truth to the idea that young people early in their careers uniquely benefit from going into the office. Research conducted prior to the pandemic has associated being out of sight while working remotely with also being out of mind. Notably, people who work exclusively at home are less likely to receive promotions and bonuses.

Conversely, being with colleagues in person has been associated with greater career advancement. In part, this is probably because being physically present in the office appears to signal commitment to the organisation.

Can hybrid work address the risks of fully remote work and preserve the rewards associated with face-to-face interactions in the office? Only time will tell.

Finding the right balance

Before 2020, remote work was still relatively rare. Hybrid working at scale is a new concept.

But throughout the pandemic, perceptions about working from home have improved globally. The latest UK data suggests nearly one-quarter of working adults are now hybrid. So in the future, we’ll need to understand more about the impact of remote work both on organisations and the people who undertake it.

The challenge for younger employees is to identify an effective working pattern that suits both them and their organisation – and supports their career goals. As tempting as it may be to ditch the commute as often as possible, younger employees may instead wish to consider a more strategic approach.

When in the office, they should focus on personal visibility, and building and maintaining relationships with colleagues and managers. Networking and learning must be the focus of working in-person, and wherever possible, online meetings or independent work should be saved for remote working time.

Combine this with good wellbeing practices when working from home, especially around switching off from work, and hybrid might just deliver on its promises of better work for everyone – young and not so young alike.

This article was originally published on the Conversation.

The housing game has changed – interest rate hikes hurt more than before

Brendan Coates is the Program Director at the Grattan Institute, where Joey Moloney is the senior associate. Previously Brendan has worked at the World Bank in Indonesia, and holds a Master’s of International Relations from ANU; while Joey achieved a bachelor of commerce with honours from the University of Melbourne.

The Reserve Bank has lifted the cash rate for the second time in two months, this time by 0.50 points to 0.85%.

It won’t be the last such hike. Forecasters expect the cash rate to hit 2.5% by the end of next year. This would lift the typical variable mortgage rate to near 5%.

Cue the claims that the new generation of borrowers are entitled – they don’t know how good they’ve had it with such low rates.

But the refrain misses the full story. High house prices have changed the game, making it much harder for today’s borrowers

It is true that even a mortgage rate of 5% is well below the peak of about 17% earlier generations paid at the start of the 1990s.

But the impact of those high rates on overall mortgage interest payments as a share of income was modest, because house prices were much lower then, and mortgages were much smaller.

Typical house prices used to be about four times incomes. Now they’re more than eight times incomes, and more in Melbourne and Sydney.

This has meant that for any given mortgage rate, the share of income taken up by mortgage payments is much, much higher.

If you have a small loan with a high rate, all you need is a cut in rates, some inflation and decent income growth, and your mortgage burden can fall sharply.

That’s how it was for borrowers in the 1990s. High rates stung, but not for long.

Borrowers in the 1990s who started out devoting more than 30% of their income to paying off a mortgage found themselves devoting just 12% by the time the loan was halfway through.

It’s different if you’ve borrowed recently.

If you’ve taken out a big loan at today’s ultra-low interest rates, there’s only one way your mortgage payments can go – and that’s up.

5% would hurt like it didn’t used to

Even if mortgage rates stabilise at around 5% – which is implied by some of the things the Reserve Bank governor has said – and wages grow faster than they have for a decade, the mortgage burdens of millennials who’ve bought houses recently won’t much decline.

The extraordinary increase in house prices and debt means mortgage rates of 7% would be as painful to borrowers today as rates of 17% were decades ago.

It’s a common barb that newer generations are struggling with home ownership and housing costs because of profligate spending, on smashed avos and the like.

But millennials spend less of their incomes on “discretionary” items – such as alcohol, clothes and household services – than people of the same age did decades ago.

What millennials are spending much more on is housing, simply because houses are so much more expensive.

So as the Reserve Bank continues to increase rates, it’s important to keep in mind that comparisons between then and now miss the full story.

Skyrocketing house prices have changed the game. For millennials, even historically small increases in interest rates will hurt.

This article was originally published on the Conversation on 7th of June 2022. Read it here.

Australia’s cities policies are seriously inadequate for tackling the climate crisis

Anna Hurlimann and her co-authors are professors and researchers in the Urban Planning department at the University of Melbourne. All five contributing authors are esteemed panel members of Australian planning institutes, and receive funding for research accordingly.

It will be impossible to tackle climate change unless we transform the way we build and plan cities, which are responsible for a staggering 70% of global emissions. Yet, Australia’s national policies on urban environments are seriously inadequate.

For our ongoing research, we have interviewed more than 140 built environment professionals – architects, urban planners, property developers and more – about their experiences of barriers to climate change action.

They said Australia’s policies, or lack thereof, prevent the necessary action to not only address cities’ contribution to climate change, but also to protect cities from its impacts. As one urban planner told us, “there’s just no appetite for it” in federal government.

The incoming government must strengthen urban development policies if we’re to have any hope of meeting Australia’s net-zero emissions by 2050 target. This requires integrated action across built environment sectors.

Cities in a changing climate

Two types of climate change action are urgently needed in cities:

  1. mitigation: reducing greenhouse gas emissions, including from manufacturing and construction materials, and from the energy used to operate buildings, amenities and infrastructure

  2. adaptation: ensuring cities can endure climate change impacts such as increased bushfires, rising sea levels, drought, heatwaves and other severe weather events.

Cities are associated with most of humanity’s consumption of natural resources, such as coal and gas for energy use, and coal and iron to make steel. This means cities release enormous amounts of emissions.

Take the carbon footprint of Greater Melbourne, as an example. Melbourne released an estimated 100 million tonnes of carbon dioxide equivalent in 2009, or 25.1 tonnes per person. Of these, 4.5 tonnes are from construction and real estate services; the second highest contribution.

Materials such as steel, concrete, aluminium and glass are abundant in city infrastructure, and their production releases significant emissions.

The City of Melbourne has a stock of 1.5 million tonnes of materials per square kilometre. If we built the city today, construction alone would result in 605,000 tonnes of emissions per square kilometre. It would also use 10 petajoules of energy – the same as 700,000 cars driving from Melbourne to Sydney.

The construction industry requires better legislative drivers, including building codes, that encourage the use of recycled materials to reduce emissions.

Cities also bear a high cost of climate change impacts, particularly heatwaves and floods.

During heatwaves, cities can be up to 12 degrees hotter than surrounding rural areas.

Cities are also prone to flash flooding, as the high proportion of sealed surfaces such as concrete in urban areas can’t soak up water when it rains, like soil can. This makes them vulnerable to storm damage.


Barriers to climate action

Over the last five years, we’ve conducted in-depth interviews with 140 professionals working across built environment sectors.

They identified a number of key barriers to effective climate mitigation and adaptation in cities, such as a dearth of urban development policy addressing climate change, particularly at the federal level.

They also identified a lack of government leadership, and financial constraints in the fiercely competitive property and development environment. An urban planner said: We don’t even have a strategy for settlement in this country, let alone […] an urban development strategy. So, that’s where a lot of our climate change issues arise from: our cities and our urbanisation.

A federal urban policy agenda, if well designed and implemented, could help coordinate and fund urban development activities, providing leadership which industry would follow.

For example, it could determine where infrastructure (such as transport), services (such as hospitals), and housing are needed, and provide incentives for their sustainable construction.

Another barrier to effective climate action our interviewees identified was the tensions between local, state and federal governments, and the uncertainty about which level of government is responsible for taking action, including responding to disasters.

We saw this uncertainty most recently during the recent floods in New South Wales and Queensland, when there were delays in allocating emergency funds and assistance to people in need.

A property professional told us: Climate change action needs to be driven by all governments, federal, state and local – it has to create a level playing field. The property industry and its developers will not try any [climate] action unless they think it will differentiate them and they would make money out of it.

What will happen to homes?

Decades of climate change knowledge are presently poorly translated into built environment policy. As the planet continues to warm, this will have dire consequences on Australia’s most populated areas, such as exacerbating inequities.

In some at-risk locations – such as towns built on floodplains or in bushfire-prone areas – local governments will have to manage increasing climate change impacts on declining budgets, as property values and revenue from council rates decline.

Properties that can’t adapt to climate change, or for which the cost to adapt is prohibitive, will be unable to gain insurance. A recent analysis by the Climate Council found climate change impacts, particularly flooding, will make 1 in 25 Australian properties uninsurable by 2030.

This will reduce their value. Houses in areas prone to flooding or sea level rise have been found to be in a worse state of maintenance and repair. This compromises residents’ health and safety.

The people worst hit by climate change impacts will be disadvantaged populations living in areas where property is cheap, and these groups will find it hardest to recover when disaster strikes.

So what needs to change?

Thanks to our interviews, we can identify a few ways to help address climate change action in cities. This includes:

  • federal regulation of the built environment to boost climate change mitigation and adaptation, such as by strengthening the construction code

  • ambitious emissions reduction targets consistent with international goals, and translated into action across urban sectors

  • greater resources, such as funding and professional development opportunities, to support action

Our interviewees also identified the need for stronger leadership, more policy certainty and more cohesive collaboration across all levels of government.

What might this look like in practice?

Regulating land use with urban density and connectivity in mind would see homes, workplaces and services like hospitals easy to get to by walking, cycling or public transport. Likewise, improving building codes and design regulations would see buildings with less reliance on air conditioning or heating.

The incoming government should do everything possible to ensure we live a world that doesn’t exceed a temperature rise of 1.5℃ of warming this century. This cannot happen without stronger national policies on the built environment.

This article was originally published on the Conversation. Read it here…