Building industry to blame for poor sales of new homes

By Michael Matusik, 29th August 2012

Just released yesterday ….

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, and yes the irony isn’t lost on me, given my intro to yesterday’s post. See, we all do it!

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

But more on these issues in future missives.

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 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 housing industry – in the main – is quite lost.  It still operates like a land-line phone. It isn’t a smart-phone or a tablet. It is analogue not digital. It is at odds with its target market 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.

Ohhh, 47 tomorrow.  Where did the time go?

Michael Matusik

Michael Matusik is a leader in residential market analysis and property advice in Australia.

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