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Expect this residential down cycle to be kinder than most, say architects and engineers

Photo by kevin laminto on Unsplash
Photo by kevin laminto on Unsplash

While the recent Avdiev Remuneration Report pointed to some minor spot clouds around for salaries in the property sector, you’d expect professionals in the residential sector, architects in particular, to feel a tad more vulnerable than most.

After all, they’re the canary in the coal mine in our addiction to boom busts in housing – first to feel the uplift and first to feel the pinch.

And if this particular downcycle is threatening to turn into a crash – if the morbid pundits calling falls of 40 per cent are correct – a touch of nerves would be understandable.

A potent cocktail is brewing: tightening credit, rising global interest rates and a tighter investment export market from China thanks to Beijing tightening the outward bound funnels.

Already you can see an overcooked investment market, most clearly evidenced by the extraordinary sight of falling rents in parts of Sydney, and (anecdotally) agents chasing renters with Coles style “lower prices”.

But despite the stormy weather, architects are surprisingly more relaxed than in previous downturns.

What’s happened, they say, is a few important differentials that set this market cycle apart from the rest.

One is a shift in preferences from detached housing to higher density apartment living, and this is cushioning demand for skills and services in building and design profession because apartment buildings tend to be bigger, more complex and take longer to design and deliver. So they provide more work, with a longer tail.

The Reserve Bank of Australia says the number of apartments constructed each year tripled since 2009 and, in 2016, they accounted for around one-third of residential building approvals.

The Urban Task Force’s report by McCrindle 2017 Sydney Lifestyle Study, showed that by 2050, apartments will become the most dominant form of housing.

While this is generally good news for the environment because it’s concentrating populations in areas with existing services and saving farmland from urban sprawl, there’s another benefit for architects and others in the industry.

Principal of Allen Jack + Cottier Michael Heenan told The Fifth Estate this week that this kind of shift means projects on the go now could last another two to three years, enough to ride out the lull in the market.

But he also told The Fifth Estate this week that his business prepared a few years ago for the downturn, reweighting its resi-dominated workbook to more diverse sectors, such as schools and cultural buildings. Those who’ve put all their eggs into the one basket with one or two big projects that are nearing completion will be feeling the pinch, he says.

But the downturn is normal and to be expected, according to national president of the Australian Institute of Architects Clare Cousins.

Australia’s housing market has always been cyclical in nature and the current softening in residential markets, especially in Melbourne and Sydney, is not unexpected, she said.

Cousins points to the usual culprits of tighter finance, this time bolstered by the Banking Royal Commission.

But decline was not evenly spread, she said, with sharper falls in both the apartment and investor markets.

“The latest ABS data releases show that seasonally adjusted, dwelling approvals for private sector houses fell 1.9 per cent in August, whereas private sector dwellings excluding houses fell 17.2 per cent in August.”

Cousins pointed to other mitigation in the downturn.

At the macro level it was important to recognise that population growth projections suggest that over the medium and longer term, subject to any major shifts in government policy, demand for housing supply will continue largely unabated. 

“While we expect there may be some adjustments in the near term, no major changes are anticipated and it will of course be an issue that the Institute continues to closely monitor,” she said.

She wasn’t perturbed about wages and staffing levels in the meantime.

“The most recent Avdiev Property Remuneration Report suggests no significant downturn in salary expectations and the Property Council/ANZ Confidence survey released last week reveals forward staffing expectations remain in positive territory despite recording a significant drop on previous quarters.”

Another cushioning effect would be home owners turning to renovations when the banks hold out the hand and slow their previously frenetic lending activity.

And there were other longer term micro impacts of the infrastructure boom along the big east coast cities, Sydney in particular, soaking up jobs and fanning development opportunities.

In Sydney alone there are 10 long term projects, in rail, light rail and Western Sydney Airport, fuelling hot spots for growth. Michael Heenan, for instance, said his 85-strong studio was now focused on western Sydney and it was likely he would open an office there in the near future.

In engineering it’s a similar story.

Managing director of engineering company Integral Andrew Mather said that in his patch there was a steady stream of big jobs on the way.

“There’s been a drop off in residential but that’s more than offset by engineering and infrastructure,” he said.

“Commercial I think will drop off and it will depend on inward investment from China, but the drop off won’t be so severe as predicted.”

The commercial oversupply predicted with the completion of Barangaroo didn’t eventuate, he said, in part because some of the older buildings that might have shown big vacancies have instead been converted to residential.

Sustainability is growing.

Mather said clients and the industry in general were focused on sustainability, certainly the top end of the market.

Increasingly this includes Chinese developers who in the early days demonstrated disinterest in sustainability.

What’s changed?

“One, because it does influence their ultimate sales or rentals, so there is a selfish or profit motive. But also there is a growing voice in China that it’s trying to be a better corporate citizen.

“When I was at WSP (as regional chief executive) I was responsible for business in China and in the last couple of years I noticed a huge shift with developers moving to be more sustainable and green. And they have a lot of ‘follow the giant’ thinking; that if someone builds a big sustainable building and the next developer has to outdo that.”

Same as it ever was in Oz. And with any luck the kind of thinking that will transcend sectors and market cycles.

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