Townsville's land development and construction sector are in a caretaker mode with residential building approvals tracking steadily from a low base of approximately 60 approvals per month. This is still 40 percent less than the 3rd quarter of 2011 at which time nearly 100 approvals per month were being delivered.
The residential building approval matrix is a pertinent chart in assessing the behaviour of not only the land development and construction sector in Townsville, but the projection of accommodation and capital prices downstream.
The incredible statistic in dwelling construction volumes is shown in this Residential Building Approval chart that shows building approvals continued for 4 years to 2015 while the number of people employed had been dropping since the 1st quarter of 2011.
And despite building approvals decreasing through 2015 to 2017, rental vacancy rates remained high around 5-7 percent and holiday occupancy rates remained low at 60 percent.
The incredible statistic in dwelling construction volumes is shown in this Residential Building Approval chart that shows building approvals continued for 4 years to 2015 while the number of people employed had been dropping since the 1st quarter of 2011.
And despite building approvals decreasing through 2015 to 2017, rental vacancy rates remained high around 5-7 percent and holiday occupancy rates remained low at 60 percent.
Bring this observation to the current day. Despite the North Queensland stadium being approved by all levels of government with negligible medium term economic benefit anticipated, the central city and Ross River precinct improvements are set to attract buyer interest as a catalyst for further unit development in the city.
From 2012 to 2016 unit development increased substantially despite the vacancy rate reaching 8-9 percent which is well above viable yield levels. Yet the construction sector will leverage the negligible economic impact from the nationally profiled stadium to seek further building approvals in the City precinct and meet the council's strategic target of having 30,000 residents in this precinct.
From 2012 to 2016 unit development increased substantially despite the vacancy rate reaching 8-9 percent which is well above viable yield levels. Yet the construction sector will leverage the negligible economic impact from the nationally profiled stadium to seek further building approvals in the City precinct and meet the council's strategic target of having 30,000 residents in this precinct.
However, unit developments in the city precinct have been much higher in the past 5 years than any time in the history of Townsville. Yet the city precinct is still struggling to stimulate improved visitations to Flinders Street and an economic recovery.
This matrix demonstrates the influence of the land development and construction sectors in the Townsville economy because building approvals continued well above sustainable levels during the 2011 to 2015 years.
This may suggest construction approvals are politically-driven or influenced by the civil administration budget instead of open market supply-demand dynamics, which is the key paradigm for investment decision-making.
This may suggest construction approvals are politically-driven or influenced by the civil administration budget instead of open market supply-demand dynamics, which is the key paradigm for investment decision-making.
"Capital goes where the cash flows". And with respect to Townsville's economy, the historical flow of government funding as Australia's largest garrison city with a high resident turnover has enabled the real estate and property management sector to become the 2nd largest contributor to GDP.
Management and general administration service sectors are leading. Yet again, this is an indication of the government contribution to the overall economy. These service-based sectors have replaced the heavyweight industrial mining and manufacturing sectors as the most relevant contributors to the Townsville economy just 4 years earlier.
Management and general administration service sectors are leading. Yet again, this is an indication of the government contribution to the overall economy. These service-based sectors have replaced the heavyweight industrial mining and manufacturing sectors as the most relevant contributors to the Townsville economy just 4 years earlier.
The global financial crisis, reduced commodity prices and the subsequent downfall of infrastructure development businesses such as Clive Palmer's nickel refinery and associated local construction and manufacturing businesses have been frustrating for residential and industrial property construction.
But more precisely, the oversupply of accommodation in a receding economy has impacted the investors that are already vested in the market, which serves approximately 45 percent of the total housing stock in the economy.
But more precisely, the oversupply of accommodation in a receding economy has impacted the investors that are already vested in the market, which serves approximately 45 percent of the total housing stock in the economy.
Government intervention was a significant contributor to the sustained residential property approvals during the 4 year high of the construction sector.
The National Rental Affordability Scheme (NRAS) and military infrastructure spending contributed significant inflows while the private sector economy was losing confidence and laying off workers.
The reserve bank cash rate continued to fall and government grants stimulated continued borrowings at cheaper mortgage costs, stimulating building approvals and putting significant pressure on incumbent investors to reduce rental prices to maintain cash flows.
The National Rental Affordability Scheme (NRAS) and military infrastructure spending contributed significant inflows while the private sector economy was losing confidence and laying off workers.
The reserve bank cash rate continued to fall and government grants stimulated continued borrowings at cheaper mortgage costs, stimulating building approvals and putting significant pressure on incumbent investors to reduce rental prices to maintain cash flows.
The evolving dependence of Townsville's economy on political and government funding, and therefore susceptibility to free market conditions in the absence of a globally relevant industrial sector, presents a significant material risk to Townsville's economic recovery. And therefore as a consequence, the capital and yield opportunities for investors in all sectors of the market.
Townsville's industrial economy is tinkering on the edge of mediocre growth and sustained limited opportunity because it is dependent on high commodity prices, low cash rates (driven by capital city prices) and shallow private capital investment in industry infrastructure. Respectively, the first of which has been falling and the cash rate is anticipated to increase, while industry venture capital is nearly non-existent.
The most significant private capital investment market in Townsville is residential real estate. In the absence of this politically driven market, private capital for the industry is unlikely to be directed to start-ups. Instead, new technologies for existing operators could increase, putting, even more, pressure on employment demand as labour is outsourced.
The announcement of the Elliott Springs development in the past week presents a further case study in explaining the duopoly that exists in the underlying drivers of the Townsville economy and how the land development and construction sector operates.
With the City precinct earmarked for 30,000 more residents (not dwellings) and Elliott Springs earmarked for another 20,000, plus additional northern corridor developments happening over the next 5-15 years, one could be wondering where the ongoing jobs are being created. Technology investment around the Internet of Things (IoT) is projecting up to 40 percent of existing jobs will be made redundant.
Construction is a significant political lever in an economy supporting significant government assets and initiatives, and soon to be influenced even further by the strategic military alliance with the Singapore and United States armies.
Unfortunately, the free market drivers impacting investor risk is exposed to orchestrated initiatives between politicians and construction moguls, resulting in the land development and construction industry profiteering and political capital raising at the behest of incumbent investors.
The effects of the land development industry and construction dynamic is a boom and bust cycle the likes of which is being experienced in Townsville now.
While free employment markets dropped over the 4-5 year cycle, land and construction starts continue to increase because the government funding cycle presents a two-speed economy not dissimilar to the mining industry compared to the rest of the economy across Australia in the last decade.
While the abundance of land development across Townsville continues and politicians can leverage the perceived economic stimulation, existing and incumbent investors will have to settle for subdued price growth in capital and accommodation markets for the foreseeable future.
The most significant private capital investment market in Townsville is residential real estate. In the absence of this politically driven market, private capital for the industry is unlikely to be directed to start-ups. Instead, new technologies for existing operators could increase, putting, even more, pressure on employment demand as labour is outsourced.
The announcement of the Elliott Springs development in the past week presents a further case study in explaining the duopoly that exists in the underlying drivers of the Townsville economy and how the land development and construction sector operates.
With the City precinct earmarked for 30,000 more residents (not dwellings) and Elliott Springs earmarked for another 20,000, plus additional northern corridor developments happening over the next 5-15 years, one could be wondering where the ongoing jobs are being created. Technology investment around the Internet of Things (IoT) is projecting up to 40 percent of existing jobs will be made redundant.
Construction is a significant political lever in an economy supporting significant government assets and initiatives, and soon to be influenced even further by the strategic military alliance with the Singapore and United States armies.
Unfortunately, the free market drivers impacting investor risk is exposed to orchestrated initiatives between politicians and construction moguls, resulting in the land development and construction industry profiteering and political capital raising at the behest of incumbent investors.
The effects of the land development industry and construction dynamic is a boom and bust cycle the likes of which is being experienced in Townsville now.
While free employment markets dropped over the 4-5 year cycle, land and construction starts continue to increase because the government funding cycle presents a two-speed economy not dissimilar to the mining industry compared to the rest of the economy across Australia in the last decade.
While the abundance of land development across Townsville continues and politicians can leverage the perceived economic stimulation, existing and incumbent investors will have to settle for subdued price growth in capital and accommodation markets for the foreseeable future.
References:
Herron Todd White Property Market Update November 2016
National Australia Bank Online Retail Sales Index June 2016
Australian Treasury Small Business Key Statistics and Analysis Report 2012
Rapid Realty Australia
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