This recent sale shows just how much the explosion in construction costs has affected the market.
A lot of people don’t appreciate how interconnected the new house property market and the existing house property market are.
And we’ve heard a lot recently about the troubles in the construction sector. It’s like another major builder goes bust every week these days.
And a lot of that has to do with construction costs, which have exploded in recent years.
The CPI data last week showed that inflation in the cost of construction materials is starting to ease, but at 13%, construction inflation is still a bit extreme.
And that’s starting to impact the existing house market.
In particular it’s making old houses that can get by without a major renovation more attractive.
That’s what drove the strong price of this recent sale. It was a 1991-built “low set” four-bedroom house on 315 square metres at 19 Mindona Street, Wishart, Queensland. It sold at auction for $1,419,000, a good couple of hundred thousand more than the agents were expecting.
The agent was impressed:
It’s the highest price for an original low-set I’ve seen since 2021. It was strong money. But there were 58 registered bidders. If [that buyer didn’t] buy it for $1,419,000, the other person would have bought it for $1,418,000. The end price result is a number similar to what we were seeing at the end of 2021, start of 2022.
But what really surprised him was how much people valued a ‘family ready’ home that was ready to move into right away.
It was family ready, as per original specifications. It surprised me how much buyers placed a premium [on that]. I didn’t see it coming. Five years ago, if had a 30-year-old house, people wouldn’t have seen it as a viable option, as a “now” thing for many families.
But because of the incredible increase in construction prices, we’re seeing that existing homes that will take families are very competitive, even if they may not be brand new.
It’s almost had an appreciative effect. Even if there has been [an element of] land value coming off, it’s been propped up on the other side with the construction issues and lack of confidence in the market. I’ve never seen that before.
They won’t need to do major structural changes. There’s no need to build on to it. They’ll do the kitchen, retile the bathrooms. It would be $200,000 to $250,000.
That’s not nothing, but it shows how much the cost of construction materials is affecting people’s purchasing decisions.
The agent reckons it’s like a second-hand land-cruiser:
It’s a simplistic parallel, but if you want to buy a new Landcruiser, there’s a three-year waitlist. If I’m sitting with a two-year-old Landcruiser [and want to sell], I’m getting more than what I should normally get for it.
It’s the same thing – it goes back to supply.
Yep. Everything in economics does. It’s all about supply and demand.
DB.