James Hardie has adjusted its earnings forecast to a more modest number, attributing this in part to homebuilders opting for cheaper houses and materials due to the uncertain economic climate..

The predicted earnings are between $136 million to $141 million compared to its 2012 earnings of $142.8 million.

Chief executive of James Hardie, Louis Gries, told The Australian that builders are 'value engineering' and 'de featuring houses' to lower costs as well as building smaller homes with lower cost materials.

"They pull any costs out of the home that homeowners are not aware of," Gries said.

"Meaning it's not easy to see if you've got five-eighth-inch gypsum (plasterboard) or half-inch gypsum, or if you have 24-inch spacing on studs versus 16 (inches), or you have two-by-sixes or two-by-fours (the width and depth in inches of wooden planks used in construction)."

Economist Leith van Onselen who writes for Macrobusiness blames the rise of land prices for the increase in housing prices which has led to the replacement of quality materials with cheaper versions which can negatively affect sustainability goals.

He said that people are building large houses on smaller blocks with less room to plant trees and vegetable gardens as well as building houses closer together which can mean the elimination of roof eves.

"It also means that homes are so close together that many do not contain roof eves or verandas and have poor air flow, thereby requiring greater air conditioning in the summer. The lack of backyards and open space also encourages children to remain inside playing video games and watching TV, which of course uses more energy."

Van Onselen added that the value of residential land relative to Australia’s GDP has roughly doubled since the mid-1990s. He added that the value of residential structures has remained 'roughly constant' over time.

In reference to the James Hardie announcement, Onselen surmised:

"When vacant land prices are at $200,000, and affordability cuts out at $350,000, there is not a lot of margin for home builders to make a profit. As such, they have little option but to cut corners and build a cheaper sub-standard product."

James Hardie's Louis Gries is expecting this trend to ease in the next two or three years.

Madeline Prince

James-Hardie-cut-earnings-forecast-1736089447.png

Let’s connect!