Renovation is a rite of passage among homeowners. Who hasn’t wanted to stand back and admire their handiwork, convinced our sometimes-meager efforts will yield a vast uptick in livability and equity?
So, while renovation activity has been well established over decades as a pastime for real estate owners, recent years have upped the ante. Since late 2020, renovation activity has been a hot prospect among Aussies. Multiple factors, including government stimulus and low interest rates, have delivered stellar conditions for those wanting to tackle a fixer upper. In addition, long weeks spent locked down have resulted in itchy trigger fingers for those with a spray paint gun, and it’s not just to relieve the boredom of confinement. Extended periods in our homes have revealed their shortcomings. There are, in particular, millions of suburban and city residents who’ve discovered just how small their abodes can feel. They want to improve their lot, and renovation is the path out.
This month’s Herron Todd White (HTW) Property Clock report looks into how renovation trends are changing across Australia, and how they are changing the way we buy and sell property.
Before we go any further though, let’s check out the property clocks for both the housing and apartment markets.
It’s not going to come as a shock to anyone, but there are almost no markets on the decline across Australia right now – with the lone exception of the Canberra apartment market, which has a bit of an oversupply problem – meaning that everything is hot, hot, hot. Everyone is looking to either buy or sell while interest rates remain at their record low, and it shows in the property clocks. Many are predicting that this will remain the status quo for some time to come, and we have to agree – there a very few signs in the market that it won’t continue its rise.
New South Wales has been one of the biggest markets in Australia for both home sales, and for home renovations. Western Sydney suburbs, for example, have been seeing more extensive renovation than other areas, owing to the larger blocks and cheaper land – making the area ideal for first home buyers to get their foot in the door, and then do up their new home so it matches their style. Lismore and Kyogle have been getting more conservative renovations, with most in these suburbs consisting of the ‘basics’: updating kitchens, new paint, adding a pool or balcony, etc. The Ballina Shire, which has been impacted by the QLD/NSW border shut downs, has very little renovation occuring when compared to other areas. This is linked to an influx of CBD buyers moving into the region, a demographic shift which has been sped up by the lockdowns. HTW analysts believe that the region will soon catch up with others in terms of renovation numbers, as more of these buyers become settled and want to update their homes. New builds are the hot topic in some regions, with Clarence Valley having the largest number of new builds over the last month.
Given the large amount of new construction around the Sydney growth precincts, the availability of quality tradespeople is limited as they are held up on larger job sites. In addition, the pandemic has impacted the supply of materials into Australia, resulting in higher prices for raw materials being pushed onto the consumer. This has been particularly true in regions such as the Blue Mountains, Eastern suburbs, and Southern Sydney, where property is historically tightly held, and it is often cheaper for homeowners to renovate than move and upsize. Now though, given how difficult it is to get materials, and the increasingly long building timeframes, many homeowners in the region are doing just the opposite – they’re selling rather than renovating, because they want to strike while market is hot (and interest rates are low). However, the opposite also rings true: many homeowners are choosing to renovate rather than sell because they don’t want to leave the suburb they are in, and feel that if they did sell, they will have to move out of the suburb they are currently in as they won’t be able to buy into it again – according to Herron Todd White, this is the story they’re hearing most often from homeowners in regions such as North Shore, Byron, Coffs Harbour, and Inner Sydney.
Some suburbs in New South Wales have been far and away the biggest renovators. Across the five suburbs below, Herron Todd White attributes this to the low buy-in prices, and the number of tradespeople located in/around these suburbs, making it easier to find people to get the work done. The most frequently renovated suburbs in NSW are:
The repercussions of the COVID-19 pandemic have sparked a record breaking renovation frenzy across the country. Having already spent an all time high $37 billion on home renovations in 2020, Australians are on track to top this previous figure by an additional ten per cent in 2021 (Domain, 2021). Victoria is a great example of the drive for these renovations: construction throughout the state has been booming since 2020, and it shows no signs of slowing down anytime soon. With the lockdowns of the past 12 months forcing most to work and spend a lot more time at home, many have chosen to improve their existing dwellings and invest in their own properties. Extensions that include study areas and home offices have been the most popular with many businesses encouraging their employees to work from home. Landscaping and the addition of outdoor entertainment areas have also seen high demand as homeowners have looked to ensure their homes are as comfortable as possible
There is an increased demand for outer suburb properties in the south-east and on the Mornington Peninsula as many look for a lifestyle change away from metropolitan Melbourne. As a result, renovations and upgrades have become a viable option for many homeowners and homebuyers. Funds that may have previously been spent on travel and entertainment have in recent times been injected into people’s own assets, including property. According to HTW, in the more affluent inner suburbs such as Glen Iris, Canterbury, Mont Albert, Balwyn and Doncaster, we are seeing developments and renovations to redesign older houses to feature modern and high end finishes. These types of renovation typically push above median house prices toward multi-million-dollar figures.
The buying trends within Melbourne suburbs vary wildly. With first home buyers struggling to break into the competitive inner northern suburb market, buyers in this category are being pushed towards old dilapidated homes. As a result, prices for such homes are producing very strong results at auction, with buyers seeing an opportunity to buy and renovate in order to break into the highly sought-after market of the inner north. Additionally, the current market conditions are providing investors with an opportunity to sell homes for a quick profit. Renovators are seeing plenty of value in suburbs such as Coburg and Pascoe Vale, where median house prices are just $1.085 million and $950,000 respectively (CoreLogic, 2021). These relatively low median house prices when compared with inner suburbs coupled with steady market growth is resulting in some renovators making substantial profits in a short period. In contrast, Melbourne’s western suburbs have been mostly dominated by new builds and knock-down rebuild projects, although activity has been starting to slow down in the last few months due to the materials shortage. In fact, the materials shortage – and overbooking of tradespeople – is so bad in some suburbs that the increase in costs has stopped many from renovating at all, as is reportedly the case throughout much of Geelong, Bendigo and Mildura.
Queensland is called the ‘fixer-upper state’ for a reason: they all love a good renovation. The style and design of a traditional Queenslander house (ie. timber and tin) certainly lends itself to this, and the last few months have been testament to how much everyone wants to upgrade their home. The latest data from CoreLogic revealed that in the three months to the end of July 2021, Brisbane saw a 6.0 per cent increase in dwelling values. In addition, the 12-month increase was 15.9 per cent. While some of this is related to how how the market is, the improvement in property from renovations also plays a part.
While renovation – whether it be for homes, investment properties or for flipping to profit – is something that can be tackled across most locations, in Brisbane there’s been more activity close to the CBD where vacant land is scarce. In outer suburbs, the main driver of construction is new home building. There’s plenty of land on offer, and new builds can be relatively affordable with the right project builder. So, most renovation centres around the inner city and mid-ring areas, with some other locations including bayside and rural residential suburbs. Mid-ring suburbs are also experiencing plenty of renovation activity in Brisbane, with most hoping to attract family buyers. There’s solid demand for beautifully completed homes – particularly in areas around good school zones, parklands and amenities.
On the Gold and Sunshine Coasts, renovation is going strong, but getting hold of materials is becoming an increasingly large challenge. On both coasts, HTW is predicting that almost all work will see a markup of 30% before the end of the year. The main driver of gentrification in these older areas is that they are well located close to amenities or the beach, thus creating the desire of people to live in these locations.
Apartment renovations are the name of the game on the Gold Coast, with many duplexes and walk-up units in particular benefiting. This will help bring some younger buyers into some older suburbs, breathing new life into these regions. Unlike detached housing and apartments, townhouses in the Gold Coast northern regions have not achieved a similar level of capital gains. This market has been dominated by investors and the rental levels have not been attractive enough for landlords to carry out renovation works.
In contrast, areas like Rockhampton and Gladstone are seeing very little renovation – almost all buyers are wanting brand-new properties, which means that when renovations are occurring, the work is quite extensive.
With many south Australians being stuck at home throughout 2020 and the added benefit of the home builders grant, renovations have become popular for both owner-occupiers and investors. June quarter data has revealed another record high metropolitan median sale price of $540,000. The rising market and limited stock have created a dynamic where many owner-occupiers have chosen to renovate rather than sell and upsize whilst investors have renovated to cash in on the ballooning market.
Renovation activity in the Mount Gambier market has seen a rise throughout the COVID pandemic period. Herron Todd White have noticed during their daily inspections that home projects are more active. Upgrades and maintenance are being undertaken more frequently as home owners now have more time to complete projects they may have put off in the past. Different price points do play a part in renovation projects, with older established housing usually being renovated below $300,000. Older established housing above $400,000 is also being renovated however this is less frequent due to less stock available on the market and is usually in highly sought-after locations. In the current rising market within Mount Gambier, renovation is still feasible if a number of works can be undertaken by the owner. If a full renovation is required by trades, it is quite easy to over-capitalise in the current market due to escalating costs because of high demand and material shortages.
Master Builders Association of WA Chief Executive John Gelvais has stated that residential property construction times have roughly doubled, and we are seeing signs that this may be a conservative estimate. At the moment it is near impossible to find a tradesperson not busy or booked out well in advance resulting in a sharp decline in construction starts as the market is wary of the increased costs and uncontrollable timeline associated with new construction.
The strongest increase in renovation activity in the metropolitan Perth area has come from the older established suburbs. On the fringes we have suburbs such as Oakford, Darling Downs and Cardup. Just south of the CBD we have Willetton, Leeming, Bull Creek, Shelley and Rossmoyne. Along the north coast, it’s Duncraig, Carine and Karrinyup. The inner-city suburbs such as Inglewood, Mount Lawley and Mount Hawthorn are always steady in the renovation market with plenty of owners taking the opportunity to blend an old character home with an internal modern make-over. Whilst renovations are tailored to each property, the most common renovation is updating the kitchen, bathroom and floor coverings to bring the house into the 21st century. Taking a closer look at the outer suburbs, it appears that renovated hobby farms and dwellings on acreage are currently attracting high levels of interest from people who presently reside in the inner suburbs. Demand is especially high where quality kitchen and bathroom renovations have been completed. Traditionally, it can be very easy to overcapitalise on outdoor areas in these suburbs, however in a rising market such as this, it is less of an issue as people are willing to pay a premium for high quality ancillary improvements.
Those living the NT love their toys – boats, caravans, quad bikes, etc. – and the renovations and additions to property in the area reflect that. Large sheds on residential properties are a huge selling point and often you will find these sheds are accepted by the wider market and increase the demand for the property. With that said, what HTW often find when valuing the property is that the cost to construct and install a large garage shed (50 plus square metres) is not reflected in the value increase in the sales price when considering residential properties.
There are many homes in the northern suburbs of Darwin and certain pockets of Palmerston that are perfectly positioned for renovation and upgrade. We are now approaching 50 years since Cyclone Tracy and while many northern suburbs properties are 40 plus years of age, there are many homes with good bones in need of renovation throughout Darwin and beyond. This is attracting a lot of first time buyers, and families looking to create their dream home in knock-down rebuild situations.
The majority of renovation projects being undertaken are on owner-occupied dwellings and units, with some investment properties getting an update and a small proportion of the market looking to buy, renovate and sell. There is certainly money to be made in flipping houses and units, but it requires some experience and owners need to be wary of over-capitalising
The Canberra residential market has continued to surge forward well into 2021, with little indication of any change in momentum in the short term. Current interest rates coupled with historically low stock levels have ensured high auction clearance rates and maintained a seller’s market. While existing homeowners looking to upgrade may be tempted to take advantage of current market conditions and cash in, the premium achieved will be effectively absorbed by the premium paid for the next purchase. This coupled with people spending considerably more time at home has resulted in an increased volume of people electing to undertake renovation and extension works to their existing properties rather than attempt to sell and re-enter the market. Discussions with local builders and a notable increase in the number of valuations undertaken on an as if complete basis for renovation or extension purposes indicates that this is on the rise.
The story in Tasmania is the same as every other part of the country: there simply aren’t enough materials and tradespeople for the amount of work wanted. Renovations are the name of the game down in Tassie, and the markup on work prices reflects this. In a nutshell, if you are in a good location, renovations may well be the way to go but don’t be surprised by the quote to complete the works. If you are on a tight budget, be prepared to get your hands dirty to save some dollars. If you are on the outskirts of Hobart where prices are somewhat lower, perhaps a fresh lick of paint, new floor coverings and a prefabricated kitchen is the way to go.On the other hand, if you can secure a block of land, it may well be more affordable to build from scratch but sourcing a block of land is also getting harder and more expensive by the day.
What do you think about this month’s property clocks – does it reflect the market you’re seeing? Let us know in the comments below.