I was reading an article in The Age the other day (http://www.theage.com.au/business/consumer-affairs/the-truth-about-tradies-salaries-20160510-goqrk8) that talks about what tradies really earn. On the face of it, it might surprise you that hourly rates of $75 plus are not uncommon. This compares favourably to the average NSW wage of a teacher — $33ph — or a nurse — $36ph — employed for 5 years. While this is good for the tradesman who’s skills are in demand, what I find interesting as well is the correlation to residential property development. The article’s research shows that the tradies who have experienced the biggest uplift in their earnings in the past 12 months, have been builders in NSW.
This is not actually surprising, given that during the same time the property market in Sydney has been booming and it stands to reason that with higher demand comes wage growth. This article demonstrates the point well, as it shows that plumbers and electricians in the WA minefields are still the most highly paid, however their incomes have dropped off since the peak of the mining boom.
Relating this to the property market, have you ever noticed that new apartment developments are often brought to market either just below or around median prices for the area? It is not unusual and what this probably tells you is that the land to asset ratio on each apartment is low.
To build the development, the developer must first buy the land, gain all of the permits and approvals to build, acquire the building materials, acquire hire equipment like cranes and pay for labour. Oh and let’s not forget a profit margin for the developer and potentially commissions paid for advisers who introduce the development to a client for purchase. In periods of boom like we are experiencing, all of these costs may end up higher too, not just wages as this article indicates has happened in NSW.
This is interesting to consider for potential investors, as the primary driver of property growth is typically the land value. Land appreciates over time as it is finite and it is this lack of supply in our capital cities that stimulates competition leading to price growth.
The building on top invariably only depreciates in value with time. This point is recognised by the tax office, which is why they allow investors to claim depreciation on investment property.
When you put it all out on paper like this and consider how it might perform as an investment, it may not sound too rosy, though as always it really depends on what your underlying investment objectives are and this is why careful analysis prior to jumping in is always the right decision.
Personally, I’m pleased for the tradesman that they are being paid well and are in high demand. As a rule they do an excellent job and make the environment we all live in better for everyone.
Written by James McFall
"GOOD FORTUNE NEEDS GREAT PLANNING"
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