Home construction costs to rise as market recovers BRIDGET CARTER AND ANDREW WHITE
September 30, 2013 12:00AM
THE price of constructing a home is expected to rise in the months ahead as the nation's largest listed building material firms increase product prices for the first time in years, thanks to an improving property market.
Stocks in the sector have risen by more than $2 billion to $22bn this month as investors price in expectations that the price rises will stick and volumes will increase.
But there is debate about whether low interest rates are inflating an unsustainable bubble in housing values.
While analysts anticipate a 15 per cent rise in new home approvals in the next year, building material prices have already been increased by some companies.
Sources suggest groups such as CSR, Boral and Fletcher Building will use the lift in building activity to increase their margins.
The companies previously kept prices steady, as builders struggling amid the difficult conditions would have been unlikely to absorb the costs.
JPMorgan building materials analyst Jason Steed said he expected a moderate improvement in the number of homes built in the next year, but the regional picture would probably be a factor in stock performance.
Mr Steed said the NSW market had remained stagnant over the last five years but some growth was starting to come through.
When Brickworks reported its annual results two weeks ago, its shares gained 2.8 per cent on the day because sales and volumes rose 20 per cent and improved results for building products were expected. Brickworks announced a lift in volumes towards the end of the year and said product prices had helped a 26.9 per cent increase in net profit, excluding significant items, to $100 million.
A 6 per cent lift in brick prices during the 12 months to July was one of the sharpest hikes in more than 15 years, managing director Lindsay Partridge said at the time.
The company said further signs that the market was improving had emerged, with 500 people coming through its Sydney showroom last week, more than double the typical volume.
A rise in property prices has prompted federal Treasurer Joe Hockey to say he hoped it would be a signal for property developers to go out and start projects.
Home building is considered a major driver of the economy, affecting employment, credit growth and retail spending.
The Reserve Bank has been anxious to stimulate the sector as the broader economy moves out of an extended mining investment phase.
More bullish brokers are predicting an extended new-home construction cycle that will stimulate demand for heavy building materials, construction equipment and skilled labour. Shares of Boral, the country's largest building materials business, have risen from $4.20 to $4.86 this month.
Glass, aluminium and building materials supplier CSR rose from $2.25 to $2.48 while James Hardie -- which is more exposed to the US housing recovery -- has lifted from $9.81 to $10.91.
New Zealand-focused Fletcher Building has jumped from $7.61 to $8.55, Brickworks from $12.25 to $13.80, Adelaide Brighton Cement from $3.35 to $3.70 and paint maker Dulux from $4.73 to $5.30.
Boral will increase cement prices by 5 per cent next month.
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http://www.theaustralian.com.au/business/property/home-construction-costs-to-rise-as-market-recovers/story-fn9656lz-1226729554913