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Sale of timber assets by the South Australian government

CHAIR —Welcome. Would either of you like to make an opening statement?

Mr Stewart —The Master Builders Association has been established since 1884. We are a membership association in the building and construction industry. We represent a broad cross-section of operators in the industry—housing builders, commercial builders, civil contractors, subcontractors and suppliers—and we have approximately 2½ thousand members spread across the state of South Australia.

Mr Harding —We represent principally the residential building sector. We have a representation of builders, large and small, subcontractors, manufacturers, suppliers and professionals. We have coverage of around 2,800 members. Like the Master Builders Association, we cover most of South Australia. We also have a significant presence of residential builders in the south-east.

CHAIR —Thank you very much.

Senator XENOPHON —You are obviously familiar with the proposal—the forward selling of the assets—such as it is. We heard from timber merchants and the Hardware Association of South Australia earlier today in the context of this inquiry. They have expressed concerns as to what it will do to the price of timber and there were also issues regarding certainty of supply. What do both of you say about the potential impact on the housing and commercial building industry in South Australia, in terms of supply, price and the impact on the output of the housing industry?

Mr Stewart —The Master Builders Association would be very concerned in relation to the continuity of supply of good grade, quality, timber and of course any implications in the increase in costs, which would have an impact on affordability of housing. We build between 10,000 and 11,000 homes a year in South Australia, plus renovations and additions, and 70 per cent of those projects are brick veneer, where timber is used exclusively for the wall framing, not to mention the laminated beams, decking and plywood. Our concerns for our members would be from a cost point of view, a quality point of view and an alternate supply point of view, including continuity of supply and availability when it is required.

Mr Harding —We would echo the sentiments from Mr Stewart. I simply add that, if the sale were to go ahead, we would be very concerned to make sure that there were covenants in the sale that protected both the price and the supply, as has occurred in a couple of occasions interstate, but would also point out that, back in 1998, we had an expansive building program in Queensland which was calling upon timber supplies, and the cost of timber in this state rose significantly because of the lack of supply, and that had a significant effect on affordability through that period of time.

Senator XENOPHON —Do either of you have concerns about the supply chain if the forward sale proceeded? Some of the evidence we have heard today is that the Australian dollar is very strong at the moment, the strongest in 29 years, but if the dollar dropped even a little that would make it more attractive for the timber to be exported rather than processed here. Does that factor into your concerns about continuity of supply?

Mr Stewart —It would, simply because no-one can predict what a new owner would do or what their policies might be. The continuity of supply and the timeliness are ultra-important in the residential industry. But the other issue that concerns us is the job losses that could be sustained by such a sale going ahead would materially affect our members’ ability to run their businesses in the south-east given that the vast majority of those members are small-business people. If there was a significant drop in demand for housing and renovations in the south-east, that would material affect the small-business people.

Senator XENOPHON —We have heard evidence today from the local councils and from the hardware association that there has been a drop in both the value of approvals and the number of approvals. Is that what you have heard about the south-east market?

Mr Stewart —It is a general comment that the industry could be described as patchy and flat, but that is probably an indication of the general market. My comments were more that if there were substantial job losses in the forestry industry in the south-east, that would mean less opportunity for our members to do renovations or new builds in the south-east.

Senator XENOPHON —Sure, although I suggest you may want to speak to the councils and the hardware associations because the evidence they have provided about a decline in building approvals seems to be quite dramatic.

Mr Harding —Just on the approval figures, that is reflected in the figures that we are seeing for approvals. It is not only in the south-east, it is throughout South Australia as a whole. We have seen something like a 30 per cent drop in approvals from this time last year. I think that is across the board. Certainly what we have seen over the past five to six months is a drop of approvals also in the south-east region.

Senator XENOPHON —Mr Harding, I want to get a proper comparison. The evidence given by the councils is that there was quite a significant drop in approvals. I have found the relevant item. This is just for the district council of Grant, one of three district councils affected by this: for 2008-09, 334 building applications, value of development just under $97 million; for 2009-10, 345 building applications, value of development just over $199 million; for 2010-12, as at, presumably, the beginning of March this year, 184 building applications, value of development just under $13 million. If you could take this on notice: are you able to do a comparison between, say, the rest of the state and the three district councils? It might give us a reasonable benchmark when trying to work out what impact it may have had on confidence in the area. As to what extent this proposal may have is another issue, but if you could provide that it would be useful.

Mr Harding —I am certainly happy to do that and provide that to the committee. I just want to say about approvals that one of the things that has concerned HIA over the past nine months is that government bodies tend to look at approvals as an indicator of the health of the industry. In the past five or six years we have probably seen a disconnect between approvals and actual starts of somewhere in the order of around 12 or 13 per cent, but over the past six months we have seen a disconnect between approvals and starts of getting up towards 32 per cent. So approvals on their own in the present economic situation are not providing as accurate a guide of the health of the industry as perhaps they have in the past.

Senator XENOPHON —That is very useful. If you can try to see if there is any reasonable comparison between these three district councils of Grant, Wattle Range and Mount Gambier that might be useful. Thank you for qualifying that. That is quite disturbing, really.

Senator COLBECK —We have heard some discussion about the volume of local timbers utilised in the local housing and construction industry. Can you give us a sense of the proportions of local versus imported?

Mr Stewart —Not specifically. There clearly are imported timbers coming in from Europe, but I think the majority of the industry would base their purchases on local timber because of certainty of supply and certainty of quality.

Mr Harding —I cannot give you the breakdown on that. I will ask our economics area to see if they can do some work on that, but I cannot at the moment give you a breakdown on that.

Senator COLBECK —I anticipated that that might be the case, so not having an answer now is not so much of a problem. But if you could give me a sense of that, that would be good. What about other species? This is a pine resource, so it has a particular use.

Mr Stewart —The softwood timber is primarily used for timber frames, roof trusses and decking. It is also used for laminated beams. The other sorts of timbers they use for second fix, such as skirtings and architraves. The softwood timber is also used for the MDF which goes into kitchen cupboards, stairs and those sorts of things. There is a significant amount of softwood timber used in a residential dwelling.

Senator COLBECK —You mentioned the disconnect between approval statistics and starts, which I thought was a really interesting set of numbers. What about approvals to value? The figures I saw indicated that perhaps values might have been down as part of that overall approval process. So you are looking at renovations versus new starts as part of that overall approval process. Are we seeing a change in the market as well as a reduction in—

Mr Stewart —I think the renovation figures have been fairly constant. With stamp duty et cetera it costs a lot to sell a house and buy a new house, so renovation in a lot of areas is a pretty attractive alternative.

Mr Harding —Our figures are showing that the renovation market in South Australia has held up better than the new home market. We have seen a slight drop-off but not to the same extent. I should say that renovations are very difficult to get a handle on because we can only really get stats where the renovations are over $12,000. It requires some kind of council approval. So we suspect that there is a section of that market which is a bit under the radar. But in general terms our trends are showing that it is holding up a bit better than the new home market.

Senator COLBECK —So you would have a base proportion that you would be able to measure in the overall building approvals though and, alongside that, a mean value. So that is holding up. So there is a fairly significant downturn in major construction and new homes.

Mr Stewart —There is a downturn but, compared to other states and territories, the market has held up pretty well. Traditionally its figures are quite good based over, say, the last 15 years.

Senator BACK —Could you give us some idea in percentage terms for the average residential dwelling of what the increased cost is if steel replaces timber in frames, roofing and other facets of construction?

Mr Stewart —No, off the top of my head I cannot, but that represents 30 per cent of the market currently in South Australia.

Senator BACK —Construction using steel represents 30 per cent?

Mr Stewart —Yes, steel framed housing.

Senator BACK —Is that a growing trend?

Mr Stewart —No. It grew quite strongly for the first few years it was introduced, but it has stabilised at about 30 per cent.

Senator BACK —From your points of view, is it the customer who dictates or determines whether they want steel construction?

Mr Stewart —No, not really. I think it is more that a certain section of the residential market uses steel frame. I do not think there would be many customers—it would be a very small percentage—that would dictate what they wanted.

Mr Harding —It is generally a choice of the builder, and then the builder has made the choice as to whether he will work in wood.

Mr Stewart —That is right.

Senator BACK —Since price is a huge driver to a residential home owner, is it correct to conclude that there is very little difference price-wise in the finished product whether it is built on steel construction or timber?

Mr Stewart —I cannot comment off the top of my head. That may well be the case, but 70 per cent of the market is a huge part of the market for timber.

Senator BACK —Yes. To go back to one of your early answers, you said an issue you have with imported timber is the quality of the product. Is price currently also an issue for you, or do you not see a difference in price between an important timber product and one locally produced?

Mr Stewart —I could not be absolutely certain on that but the fluctuations, I would have thought, would be greater for an imported timber with the shipping costs, the Australian dollar fluctuations and those sorts of things, as against something that has been grown locally for 100 years and has continuity of supply and manufacture.

Senator BACK —Yes. Thank you.

CHAIR —My only conclusion is that I am a cypress pine man: it is a good timber to build out of in the bush, you don’t have to worry about white ants and the rest of it can go to hell! Thank you very much for your evidence. That concludes today’s hearing.

Committee adjourned at 3.03 pm