Housing industry in the doldrums because supply is missing the mark

New homes sales fell by about 6% in July, wiping out all the gains recorded over the previous five months.  Sales stand at the second lowest level in 11 years.

In short, the housing construction market is back in the doldrums.  Newly erected homes aren’t selling, reducing the requirement for builders to start work on new projects.  The RBA governor has expressed surprise about the lack of home construction.

The housing industry is “lost” for an explanation as to why this is happening.

You see for mine, new property isn’t in strong demand because what is supplied is increasingly missing the mark; so, too, is how new property is promoted and its current method of disposal – a price reduction – just doesn’t work.  In fact, it does more damage than good.

In short, too much of the new stock on the market is poorly proportioned, designed, finished or sufficiently offset to entice buyers.

Likewise the promotion of new product is mostly homogenous, stale and reflects more the age, sex and circumstances of the development company directors than who they are trying to sell their product to.

Customers don’t want to hear about a developer’s history.  They do, however, want to know about their previous development’s performance.  Strange how few developers actually supply such details.

They also don’t really want all the lists that sales people seem to provide – pages of research material, very little of it relevant; brightly coloured brochures, dozens of floor plans/home designs.  They do want, however, trusted third-party endorsement.

Combined years of experience – give me a break.  Mostly repetition if you ask me.

Also, they aren’t interested in what makes your project different.  They only want to know what’s in it for them.

Let me close with a few remarks about discounting price.  There is a substantial body of very well-credentialed research to suggest that buyers prefer “extra for free” rather than the more generous “reduction in the asking price”.

It essentially boils down to a bonus versus a bribe.

Keep in mind that a building bonus; a first-home buyer’s grant or even a reduction/removal of stamp duties on new product is seen by the market as a “discount”.

Price tells the market much more about a product than merely what it costs.  A price cut – however it is packaged – is often seen as a mark of mild desperation on the part of the seller and it is not unreasonable to infer that the product is either inferior and/or that further price reductions are just around the corner.

Charging the full price but adding a tangible extra – i.e. a furniture package, guaranteed rental return, storage fit-out, or a fixture and finishes upgrade – does not convey the same level of desperation.  In fact, more often than not it enhances the product’s brand.

For mine, the new housing industry – in the main – is quite lost.  It still operates like a landline phone.  It isn’t a smartphone or a tablet.  It is analogue, not digital.  It is at odds with its target market(s) and until this disconnect is improved, new housing starts will remain low.

Hard words indeed from someone who is male, pale and increasingly stale, too.

And just to show my age, I have been listening to Rodriquez – Sugar man/Crucify your mind/I wonder/Sandrevan lullaby fame (even saw him in concert at the Tivoli last year) – of late.

So you think you have something to offer

Something shiny and new

But how much of you is repetition

And how much of that did you do poorly too?

Michael Matusik is the founder of Matusik Property Insights, which has helped over 550 new residential projects come to fruition.  Read Michael's blogor follow him on Twitter or connect via LinkedIn.