The online design and style reference site, Houzz Australia has released its 2023 industry outlook for residential dwelling specialists. This is based on a survey of subscribers to the professional services offered by the website, and it covers three categories: building designers, home builders and interior designers/decorators. The participants are asked questions regarding their forecasts for 2023.

The results relate to the percentage of surveyed businesses on Houzz Australia reporting their outlook for 2023, with growth comparisons to 2022.

Forecasts for 2023

Business outlook

Overall, the industry has a generally strong outlook for 2023, which is led by interior designers. Some 54% see the 2023 as being good or very good, but more than a third cautiously see it as being basically a neutral year.

There was a considerable difference in outlooks between the three categories, with interior designers the most optimistic as 81% expected a very good year, while only 56% of building designers did.

Expected revenues & profits

The biggest change from the previous year in terms of gross revenue gross is that 26% expect revenues to decline in 2023, versus only 9% in 2022. Not surprisingly, fewer expect a revenue increase, but the percentage expecting no change is virtually the same.

Profits follow much the same pattern, though the percentage expecting an increase is lower, balanced by a higher percentage expecting a decrease.

Interior designers were again the most positive, with 76% expecting an increase in revenues, and 71% expecting an increase in profits.

Growth strategies

There has been a marked increase in adopting a strategy of looking for larger projects for 2023 (63% v. 50%). Surprisingly, there is a decrease in those planning on increasing prices and margins, and slide in those seeking to improve customer experience. However, productivity issues have increased in importance, with employee efficiency up from 28% in 2022 to 33% in 2023, and a slight tick up in those planning to use software and digital tools to save time.

All three categories noted that bringing in larger projects was their top priority. Both building designers and interior designers had a high ranking for increasing marketing/sales efforts, while home builders were more focused on increasing prices and margins.

Improvements & problems

Survey participants see some dark clouds looming over 2023. The top three concerns are: increase in overheads, a worsening national economy, and a worsening local economy. However, a relatively high proportion (36%) see demand for their services increasing in 2023.

Review of 2022 - business challenges

In the section of the survey that looks back over the previous year , using data from Houzz's previous survey, it's interesting to note which categories changed between 2021 and 2021.

It's evident that consumers have grew far more cost-conscious in 2022 as compared to 2021. There was also a significant increase in the difficulty of finding new customers.

Analysis

It's interesting to note that changes to the industry are affecting different groups in different ways. Building designers are most affected by the slow-down in housing, while interior designers remain optimistic about the future. Strategy is moving towards larger clients, higher prices and better margins, but finding clients is becoming increasingly more difficult.

The impact of both local and the national economies is increasing, as are overall business costs. Added to this is that supplychains have still not fully recovered, resulting in both a scarcity of needed products and demand-driven increases in costs.

What is heartening for hardware retailers is that there is still evidently a strong focus on interior design and renovation, which can help to drive sales in categories such as paint, even if the construction market enters a phase of decline in response to high interest rates.

To access the report, download it here:

The Australian Construction Industry Forum (ACIF) has released its forecast for the construction industry going into 2023 and 2024. The ACIF states that the report forecasts a decrease in expenditure on both new housing and alterations and additions (renovations).

However, on a more positive note, the forecast sees commercial building continuing to grow. The forecast concludes that the net result will be an increase in building work done by 1% to $251 billion.

The ACIF says it sees residential demand being affected by three main factors:

Additionally, the ACIF also sees increased risk for builders themselves. They cite banks as being less willing to make interim loans to help builders meet costs and clients being more reluctant to finance construction projects that have been considerably delayed. They warn that there could be an ongoing increase in builder insolvencies as a result.

In terms of the overall shape of the market, the ACIF states:

While there is work in hand in an enlarged construction pipeline, the drop off in new projects will result in reduction in the volume of work done this year and a deeper dive in 2024-25.

Balancing out the diminished market in residential construction, the ACIF forecasts an increase in non-residential construction. They see offices, other commercial and industrial experiencing a small surge, with a slight increase in retail and wholesale trade construction. ACIF also projects good prospects for government funded construction in both the health care and education areas, with infrastructure construction set to growth 3.8% in FY2022/23.

For more details, and the chance to purchase the complete forecast from the ACIF, please use the link below.

The view from the RBA

Some commentators remain puzzled as to exactly why the Reserve Bank of Australia (RBA), in its continued aggressive stance on increased interest rates, has sought to diminish these markets. The governor of the RBA, Philip Lowe, explained some of what is going on in speech given to the Committee for Economic Development of Australia (CEDA) on 22 November 2022.

The core point that Dr Lowe had to make was that the type of inflation currently being experienced by Australia - and many of its trading partners - is quite different from other bouts of inflation experienced since the 1970s. Past inflation has been largely driven by the "supply side" - a steep rise in aggregate demand, which led to localised shortages, driving up prices. Current inflation is driven by robust demand in the context of an actual shortage of supply.

While Dr Lowe acknowledges that many of these shortages do seem temporary in nature - including interruption of production and supply due to COVID-19 concerns, and the energy shortage brought about by Russia's invasion of Ukraine - he also suggests there are longer term issues at work as well. These include:

Dr Lowe explains this last:

There is very significant investment in renewable energy around the world as we transition to green energy. But, at the same time, the existing capital stock that is used to produce energy is depreciating quickly, through decommissioning or lower levels of sustaining investment. It is difficult to make predictions here, but it's probable that the global capital stock that is used to produce energy will come under recurring pressure in the years ahead. If so, we could expect higher and more volatile energy prices during the transition to a more renewables-based energy supply.

The solution to most of these problems is, of course, increases in productivity.

In the meantime, Dr Lowe left the audience with no doubt as to how determined the RBA is to bring inflation under control, even though this does mean there will be short-term economic distress. In terms of wages, he had this to say when responding to questions after his speech:

So I know it's very difficult for people to accept the idea that wages don't rise with inflation ... and people are experiencing a decline in real wages, that's tough. The alternative though is more difficult. And, if we can ride through this period with wages growth staying broadly in the current range, maybe a bit higher but broadly in that range, and the supply side problems resolve, then inflation will come down and it can be painless, relatively. But, if we all buy into the idea that wages have to go up to compensate people for inflation, it will be painful. So best avoid that.

Dr Lowe also addressed the issue that is raised by many in hardware retail and construction, the delay between the introduction of higher interest rates and their real impact:

All of our models say that, when we tap the interest-rate brake, the maximum effect on output is 18 months to two years, so we operate with a lag. I think at the moment it's quite likely the lag is going to be a bit longer than it normally would be, and that complicates our task as well, and I say that for a few reasons.

The first is that, over the past couple of years, Australians saved an extra $250 billion over what they would normally save ... that's a lot of money. So that's sitting there and that's supporting consumption.

A second thing we saw during the pandemic was people take out fixed-rate loans. In Australia, in the past, maybe 10% of the population would take out a fixed-rate loan. Well, during the pandemic, it got to 50%. So a lot of people took out fixed-rate loans. So they're not yet paying the higher interest rates, but they will start paying them next year.

Analysis

What the ACIF forecast really acknowledges is a stark truth that is still being absorbed by both the business community and the general community in Australia. As Dr Lowe has outlined, even though current inflation is not being driven by excess aggregate demand, but rather by supply shortfall, the only means the RBA possesses to solve inflation is by cutting demand.

What this means is that monetary policy will be tightened until it reaches the point where demand is diminished. This could mean reducing demand below the level that would normally be "affordable" by the economy. While the RBA is not going to say this, that could mean some businesses fail, and the unemployment rate increases.

In plain terms, the economy will likely be steered as close as possible to having a negative quarter as it can get, and we are likely to experience at least two quarters of real austerity, as prices increase, wages do not, and many Australian households find themselves going backwards economically.

That kind of change could have a major impact, and it is likely to strike around first quarter calendar 2024, just as the construction backlog is finally dealt with.

A new report from the National Housing Finance and Investment Corporation (NHIFC) has confirmed the biggest cost increases in building materials and labour in five decades.

The skyrocketing costs have crushed profit margins for construction companies and sent homebuilding costs through the roof in the most recent financial year.

The report showed that along with structural timber prices, the cost of plywood, steel beams, terracotta tiles, and timber window frames and doors all jumped by at least 25% in the 12 months. Aluminium windows and doors and metal roofing and guttering prices were up 20%.

Metal, timber and ceramic products are the primary materials used in residential construction. Notably, steel recorded the greatest increase (42%) but is used less intensively.

The NHFIC estimated that more than 80% of the inflating cost of materials during 2021-22 was driven by supply constraints. With the Reserve Bank committed to an aggressive rate hike cycle to tame the highest inflation rate in 30 years, the NHFIC analysis suggested "cost pressures may persist even as higher interest rates slow demand".

There were, however, some signs of easing pressure on building costs as global supply chains recovered, the report said.

In The Australian, NHFIC head of research Hugh Hartigan said the sharp increase in prices in 2020 was "very much a global pandemic story", but that the inflation over the most recent financial year had increasingly been a result of Chinese lockdowns. But he also said that "the worst of this supply chain pressure is over, although we don't know if the costs have peaked".

Recently, Housing Industry Association chief economist Tim Reardon has said there had been a marked improvement in the availability of some building materials that had been in shortage over the past couple of years.

Timber, for example, was no longer as scarce following the arrival of large shipments in Australia over the past six weeks. Despite this evidence of easing pressures, building material costs would still rise by a further 10-15% in this financial year, Mr Reardon said, as surging power costs would force higher the price of energy-intensive materials such as aluminium and glass.

Related

The country's 100 largest residential builders produced a collective 74,973 housing starts last year, down from 88,215 a year earlier. Their share of the overall market dropped from 44% to 36%, based on the latest HIA-COLORBOND steel Housing 100 Report. In the Australian Financial Review (AFR), Housing Industry Association chief economist Tim Reardon said:

The market in 2021-22 was dominated by the adverse impact of rising material prices caused by record levels of demand, supply chain constraints and labour shortages.

Two thirds of the builders in this year's Housing 100 commenced fewer homes than in 2020-21.

The shortage of materials is curbing the sector's ability to build new homes and meet the record demand stimulated by the record-low borrowing costs and government stimulus payments.

Metricon kept the title of largest home builder even as the Melbourne-based group's total housing starts slipped to 5969 from 6052 a year earlier. It also cut 9% of its staff in a difficult year in which it suffered the sudden death of founder and chief executive Mario Biasin and owners were forced to inject $30 million to keep the company trading. CEO Peter Langfelder said:

Escalating construction costs, weaker consumer confidence, consecutive central bank interest rate increases, rising inflation plus speculation around the industry's stability all conspired against us and our competitors alike.

Despite this, we managed to deliver 5969 new Metricon homes to Australian customers during the past year. This is a very tangible proof point of our continued business strength.

Mr Langfelder said Metricon was aiming for 6000 starts this year.

Newcastle-based NXT Building Group - formerly known as MJH Group - rose from third to second place with 4143 housing starts.

The third-largest builder was Brisbane-based Hutchies, the home-building arm of J Hutchinson, followed by Perth-based ABN Group and Melbourne-based AHB Group.

This year, apartment builders returned to the ranking, reflecting a recovery in that sector. NXT Building Group managing director Andrew Helmers said:

The loss of overseas migration saw the apartment market shrink rapidly at the start of the pandemic, but a return to work and study is seeing the apartment market recovering.

A stabilisation in the cost of construction combined with an acute shortage of rental accommodation will continue to see a strengthening in the apartment market.

In a more general list, IBISWorld senior enterprise analyst Joel Barry said 51 Australian companies in the Top 500 operated in the building and construction industry, up from 36 last year. He told The Courier-Mail

In last year's list, construction saw negative growth of -1.62%, rebounding to 8.92% this year with average revenue of $500 million. This could indicate the larger operators being able to better withstand the effect of rising material costs compared with their smaller-scale counterparts. Builders made up 9% of total revenue for this year's list.

The number of cranes across Australia indicates construction has reached new levels for office towers, industrial warehouses and apartment towers, according to the 21st edition of the Rider Levett Bucknall (RLB) Crane Index that covers the third quarter of 2022. The RLB Crane Index measures construction activity in cities around Australia.

RLB's Oceania director of research and development, Domenic Schiafone said in the past six months 300 new cranes were added on developments sites, and 245 were removed. With the additional 55 cranes, there is now a total of 868 cranes in operation nationally.

But he said that cranes are staying up on sites longer due to staff shortages, bad weather and supply chain issues, which are blowing out construction costs. He told the Sydney Morning Herald:

If cranes providing logistical assistance to multi-storey developments remain on site longer than anticipated due to weather events and supply chain disruptions, the cost of preliminaries increase, causing overall costs to rise.

With the additional 55 cranes, there is now a total of 868 cranes in operation nationally, a new high in the RLB Crane Index since its inception in 2012.

In the 21st edition of the index, the consulting group broke from tradition and introduced a churn rate, which is calculated as the number of cranes removed in a period, divided by the closing number of cranes, and expressed as a percentage.

A lower crane churn rate percentage is an indicator that cranes are remaining on sites longer.

Mr Schiafone said the changing churn rate reflects reports of projects being delayed due to inclement weather shortages of materials, and lack of skilled labour.

Canberra has the highest churn rate for this edition at 70%, whereas Sydney recorded a 27% churn rate. Brisbane - a city hit hard by flood-related delays, on top of supply chain challenges - suffered less of a slowdown, with its churn rate falling from 57% to 32% in the same period. Melbourne slowed even less, down from 45% to 32%.

The report does not show which projects are delayed or quantify delays relative to predicted time on site. It only measures the turnover across a city.

But the extra delay does create cost. The daily cost of having a crane on site varies by project between $7500 and $12,500, to cover equipment costs, fuel, insurance and workers, RLB said.

State by state

Sydney continued to be the biggest contributor to the crane count, with 380 cranes (an increase of 32), or 44% of all cranes in the country.

Crane numbers increased across residential, civic and data centres and for industrial work in Sydney at a significant rate, whereas there were only small increases in aged care, civil, education and mixed-use sectors.

Melbourne had 206 cranes (an increase of 14), Brisbane 82 (up by three), Perth 51 and the Gold Coast 55. There were 23 in Canberra, 17 in Adelaide, 16 in the Sunshine Coast, 15 in Wollongong, 12 in Newcastle, 10 in the Central Coast and two in both Hobart and Darwin.

Property consultancy Herron Todd White (HTW) said the high cost of building materials and delays finding skilled tradies are behind a downturn in demand for dwellings that require significant additional work.

Buyers are paying a premium to avoid renovations that could cause major budget blowouts, and are currently perceived as not worth the time and effort compared to a house that is ready to move into straightaway. In the Australian Financial Review (AFR), HTW chief executive Gary Brinkworth said:

Valuers are reporting good demand for fully renovated homes across most markets, with buyers paying a premium to avoid upgrade work altogether.

Buyers and agents also told the AFR that quality renovated properties close to amenities are defying the downturn. Patrick Bright, a Sydney-based buyer's agent, said:

Buyers do not want the time, stress and drama of doing a renovation. They just want something that is finished, which means completed projects are selling at a premium.

The cost of renovating is prohibitive, and there is no certainty about how long it is going to take. This all weighs heavily on the thinking of those deciding whether to buy a doer-upper or something complete.

The number of requests for HTW's construction valuations, provided to renovators looking for an estimate of the cost to rebuild a structure, has fallen by up to 45% against a backdrop of rising interest rates, falling property prices and labour shortages exacerbating delays.

During last year's building peak, the number of renovations was growing more than 30% a year and costing more than $1 billion a month, largely because COVID-19 forced people to stay at home, according to research group IBISWorld. Renovators were also encouraged by schemes such as HomeBuilder, which offered grants of $15,000 to $20,000 for a major renovation.

But in the 12 months to June, the cost of steel increased more than 40% over that time, timber jumped about 20% and aluminium was up by about 16%, according to the Australian Bureau of Statistics. Shaun Thomas, HTW's Sydney residential director, said:

September is normally when we expect to see an influx of renovations as we wake up to the sound of hammers in the morning and a new season of The Block on TV.

Mr Thomas said renovated properties are selling for a "significant premium", typically inner-city properties with home offices in affluent areas where renovating is difficult because of development restrictions.

He said price falls of between 10% to 15% in Sydney's south-west and east are adding an "extra layer of risk for renovators, given the insecurity of where the market will be once renovations are complete". It also "stripped any potential profit" from renovation projects finished in the past 12 months.

And while HTW's valuers are reporting good demand for fully renovated homes across most Sydney markets, they also said that not all renovations will recoup their cost.

Now the cost of building and of financing were rising, along with property prices falling, there was a squeeze on the ability to profit from a renovation, the HTW report said. The result is property owners have become increasingly hesitant about undertaking renovation projects.

The scenario was likely to remain until mid-2023.

Other states

In Melbourne, HTW director Perron King warns that worker shortages in bricklaying, carpentry and roofing are at record levels. He said:

This puts pressure on the reno market, and we could see housing renovations on the decline in coming months.

In a HTW report from May, Victorians were buying new homes instead of renovating, or putting upgrade plans on hold as materials and trades shortages - and skyrocketing prices - consumed the building industry.

The May report also revealed lengthy delays, rising materials costs and challenges in getting tradies on site were discouraging homeowners from starting new improvements. In Queensland, HTW director David Notley, said:

Buyers are shunning properties in dire need of renovation. Listing pages are littered with fixer-uppers across many locations and price points.

Mr Notley also said well-renovated properties are in demand, despite slower market conditions.

While it is hard to quantify how much more buyers will pay, anecdotal evidence suggests that the price difference between renovated and unrenovated is growing.

In Adelaide, property developer Nick Smerdon said:

Renovated homes continue to achieve a premium. It's expected they will continue to do so for the short term.

Australians are spending around 30% more on home renovations than they were before the COVID-19 pandemic. The latest national homebuilding approval figures from the Australian Bureau of Statistics show that they spent just over $3 billion on home renovations during the June 2022 quarter.

In 2019, there was an average spend of around $700 million per month on home renovations whereas they are now spending $1 billion per month.

But when it comes to home improvements, some investments are translating into corresponding capital value increases on the property while others are not equating to a corresponding increase in home value.

Daniel McQuillan, managing director of property investment company Nu Wealth, said that since the onset of the pandemic, home renovations have become very popular as more people started to work from home. In Australian Property Investor magazine, he said:

In addition, more people have decided to use the disposal income they previously spent on overseas holidays to make their home more comfortable.

More people are also buying homes for renovation purposes and especially investors who are seeking to boost rental returns by upgrading old homes during a time of a shortage of rental properties throughout Australia.

With Australians effectively spending over $250 million each week on home renovations, it is critical not to over-capitalise, especially if you are a property investor.

Many first-time investors make the mistake of becoming emotionally attached to their properties and spend money that will not add any additional value to the property.

Based on the selling price of many homes, Nu Wealth found that a recovery percentage can be estimated for each renovation project. This can vary depending on the location of the property and quality of the renovations.

Not all renovations are equal and overcapitalising on a upgrades before a sale can be costly. McQuillan said:

The returns a home renovator can achieve on a renovation vary from location to location, depending on the capital values of the properties and the type of homes in highest demand in the area.

Reno suburbs

According to data from online tradie platform hipages, painters and cleaners are currently in the top 10 most in-demand trades.

The demand for scaffolding jobs went up by 40% compared to the previous year, lawn mowing was up by 37% and roof repairs were up by 32%. The top jobs posted on the site were for handymen, fencers, electricians, plumbers, painters, concreters, cleaners, tilers, builders and garden maintenance tradies.

The latest rise in renovation motivation is said to have come from the popular TV series "The Block". The areas in each where renovation rates have increased are:

Victoria - Point Cook, Berwick, Frankston, Craigieburn, Werribee, Tarneit, Melbourne, Pakenham, Hoppers Crossing and Glen Waverley.

NSW - Kellyville, Blacktown, Castle Hill, Baulkham Hills, Quakers Hill, Campbelltown, Maroubra, Schofields, Randwick and Sydney.

Queensland - Upper Coomera, Southport, Buderim, Robina, Surfers Paradise, Helensvale, Forest Lake, Coomera, Caboolture and Labrador.

Western Australia - Canning Vale, Baldivis, Dianella, Thornlie, Scarborough, Mandurah, Armadale, Morley and Perth.

South Australia - Adelaide, Morphett Vale, Mount Barker, Paralowie, Hallett Cove, Prospect, Aberfoyle Park, Mawson Lakes, Parafield Gardens and Golden Grove.

Australia's Housing Industry Association (HIA) released its Pre-Budget Submission for FY2022/23 in late January 2022. The HIA has used this document to submit its views on the current status of the home building industry, to outline forecasts for future activity in the market, and to describe difficulties that have developed in the market.

The basic matters of concern raised by the HIA are:

Housing demand: origins and effects

The HIA comments that the major shift in the housing market has been to lower density housing. While this does engage the further shift in preference from multi-unit to fully detached dwellings, the HIA sees this as being about not only density of housing, but density within housing as well:

There has been a distinct shift towards lower density housing during the pandemic and this trend does not appear to show signs of slowing. This shift is not just those in units moving to detached housing but includes a shift to fewer people per household. As a result, the industry has observed a significant change in the volume, type and location of new homes sought by buyers. Furthermore, rental markets remain tight despite the net outflow of migrants over the last two years.

Slightly paradoxically, the move towards fewer occupants is also seen by the HIA to have boosted demand for some types of multi-unit dwellings, at the expense of others:

The shift to lower household density is also the likely driver of demand for multi- units. Approvals for multi-units were 34.3 per cent higher in the September 2021 quarter than the same quarter a year earlier. The decline is evident in medium density housing and high-rise apartments. Nevertheless, there is a modest level of support for this sector from price sensitive households who have been priced out of the detached house market. The emerging build-to-rent market is also supporting activity in the sector.

Looking ahead, the HIA does see the reduction in migration to Australia coming to affect housing demand:

The lack of short term migrant arrivals over the last two years may impact permanent migration in the future and a drop in permanent migration may impact demand for new homes.

The HIA presents the following statistics as regards demand:

The HIA also sees demographic trends developed during the COVID-19 pandemic are likely to persist during the current decade:

Over a longer horizon we anticipate a similar number of homes will be built this decade as had been projected prior to the COVID recession. Greater acceptance of remote working arrangements is likely to favour greater demand for lower density dwellings in well-connected regional areas. This may partially reverse the trend towards higher density apartment living observed over the last decade.

Home ownership influenced by construction costs

The HIA sees the departure from historical trends in home ownership to be a matter for concern.

Over the last two decades the rate of home ownership has declined. It is important to note that while the rate of home ownership across the entire population has only declined by a small amount, there has been an alarming drop in home ownership amongst those in younger age cohorts. The rate of home ownership amongst households aged 25-29 has dropped from 43.4 per to 37.4 per cent over the last decade. Twenty years earlier the rate of home ownership amongst this age group was over 50 per cent.

The HIA sees the lack of adequate statistics as being one barrier to the better management of housing in Australia:

There continues to be no data tracking land supply through the stages of development that can be relied upon at a national level to plan for Australia's housing future. While the National Housing Finance and Investment Corporation (NHFIC) has received seed funding to address this issue, a long term commitment is necessary. Land supply management must be a priority and this can only be achieved through decision making guided by high quality data.

In particular, the HIA sees room for an expanded role for the Australian Bureau of Statistics (ABS):

It is critical that the Australian Bureau of Statistics and other Government Agencies are well placed to collect and publicly report a wider range of housing data. It is critical that this role be recognised as a long-term priority for the Australian government.

The commitments by all governments under the National Housing and Homelessness Agreement reflect a willingness to gather housing data but it remains unclear how the objectives in the Agreement will be achieved without greater resourcing.

Tax and administrative cost reform

The HIA cites figures it sources from a study by the Centre for International Economics that suggest:

...the combined costs of the statutory taxes, regulatory costs and excessive charges equate to 50 per cent of the cost of a new house and land package in Sydney, which equates to $417,000 per dwelling in taxes and charges. In Melbourne the costs reduce to 37 per cent ($216,000), 32 per cent in Brisbane ($169,000), 33 per cent in Perth ($178,000) and 29 per cent in Adelaide ($125,000).

The HIA also points to regulatory costs:

In contrast, regulatory costs, often referred to as red tape, increase the costs of new housing development but do not create more revenue for governments. For example, the various approvals required from government(s) to proceed with new housing have associated fees and charges. Projects routinely face delays which are unreasonable in these government-controlled processes. As housing development is generally debt financed, these unreasonable delays add to the interest costs incurred by the developer which is passed onto new home buyers via a commensurate increase in the transfer price.

The HIA also is strongly in favour of reform of stamp duties as they apply to real estate transactions:

Stamp duty reform was one of the key recommendations of the Henry Tax Review. The ACT is the only jurisdiction to undertake this process and is now midway through a 20-year transition from stamp duty to a broad-based land tax.

HIA supports broad-based taxation that collects sufficient revenue to provide necessary government services and is not focused on a small cohort that undertake a particular activity, such as purchasing a home.

Improving trade apprenticeships

The HIA supports a move to provide wage subsidies to trade apprentices.

The recent announcement of wage support for apprentices in their second and third year of training through the Completing Apprentice Commencements scheme has been well received by employers in the industry and will see apprentices proceed through to completion.

The wage subsidies provided by these schemes have offset the productivity deficit that employers often experience when hiring inexperienced workers and has thereby enabled more employers to create positions for apprentices.

The productivity gap for new apprentices aged over 21 can be significant as these workers are entitled to the higher adult apprentice wage. In the employment market this results in those aged over 21 facing a disadvantage compared with their younger peers when seeking employment as an apprentice.

While the HIA admits that the current level of support could not be easily sustained, it believes the program should be continued at a more sustainable level.

An ongoing program providing a wage subsidy of lesser value is worthy of consideration. Such a program would complement the commencement and completion payments scheduled to be provided under the Incentives for Australian Apprenticeships payment scheme to commence in July 2022.

Building regulation reform

While the HIA admits that regulation has an important role to play, it suggests that the assessment of regulations from an industry perspective is somewhat lacking.

The residential building industry continues to be one of the most heavily regulated sectors in the economy yet the rigour applied to the assessment of new regulations, technical standards and administrative processes is insufficient to assess the impact of reforms of industry productivity.

Furthermore, the existing approach to regulatory assessment fails to address the cumulative impacts from multiple regulatory changes at one time, such as will occur in 2022 through the National Construction Code, and regulatory changes by different bodies at the same time.

In particular, with a new set of regulations set to be applied from September 2022, the HIA sees it as vital that steps are taken to help inform and educate the industry about these changes as early as possible.

The National Construction Code 2022 is scheduled to replace the 2019 edition of the code in September this year, yet details of the new requirements are not yet finalised. Businesses are likely to be given very little time to assess the impact of the new regulations on their businesses, their home designs and appropriately inform customers about the required changes.

In order to minimise the disruption to industry activity arising from adoption of the updated National Construction Code, particularly given the significant pipeline of home sales already committed for 2022 and 2023, it is important that builders, trade contractors, design professionals and building material suppliers are well informed of these changes.

Analysis

It seems important in discussing the building industry to begin with a reminder of exactly how parlous the underlying economics of Australia is at the moment. The two charts to which HNN refers to describe this are from the Reserve Bank of Australia (RBA), for both the current level of business investment, and the growth in the wage price index:

When this kind of longer-term poor performance is placed alongside continued increases in house prices due to rising demand, it becomes evident that there is a structural problem in the economy. As HNN has suggested in the past, the property market has come to serve as a proxy for rises in wages. Australian families have come to rely on their investments in dwellings as a means of making up for both a lack of true growth in the economy, and an increasing maldistribution of what wealth there is.

There is an insistence from the RBA and elsewhere that wages will eventually rise when the labour market becomes tight enough. However, there is little evidence to support that. Australian businesses, as shown by the historically low level of investment, have for the most part abandoned growth through investment in new expansions, and instead concentrated on increasing profit through cost containment.

To put that slightly differently, the only thing that will drive wages higher will be increases in productivity. In the current modern world, most increases in productivity, as acknowledged elsewhere by the RBA, come from an increase in activities that involve the use of software (and its physical manifestation, electronics). Developing this would require undertaking risk and investment, and the economy is not currently geared for that.

The difficulty that Australia is likely to face in the medium term, when the effects of the pandemic begin to wane, and interest rates move above 2.25%, is that the housing market will, at best, show flat growth. At that time, it is quite possible that we will end up seeing the government moving to provide support to those who have over-invested during 2021 and 2022. It's yet another version of the "too big to fail" phenomenon: if enough people invest in housing in response to monetary stimulus, the government will find itself forced into a position to actually guarantee that investment to some extent.

What emerges from this type of analysis is the well-understood fact that the crisis of housing becoming unaffordable has less to do with a lack of supply of suitable residential land, and more to do with the primary dilemma that faces Australia. There are many, various simple moves that can be taken to increase housing supply (and lots of examples of how that works in nations such as the US). However, providing a surplus in the housing market would result in its collapse from its currently absurdly high levels.

There are some things that could be done by both state and federal governments. For example, moves to encourage forms of decentralisation, where higher density housing areas are developed in regions that will have only a marginal effect on established primary and secondary cities, might work. But to accomplish that - and similar moves - the first requirement would be to move beyond the current "she'll be right, mate". Unfortunately, it seems likely that it will take a strong economic downturn to disrupt that kind of wilful disregard for consequences.

The huge demand for home renovations and new builds as a result of lower interest rates and the federal government's HomeBuilder program - along with major shortages in materials and labour - is leading to the steepest jump in construction costs in more than 16 years.

The latest CCCI figures show annual construction costs have risen 7.1%, the highest growth since March 2005. CCCI is CoreLogic's quarterly measure of the change in residential construction costs and as such does not provide the actual costs.

Construction costs rose 3.8% in NSW during the quarter, more than double the previous three months. Over the year, they rose by 6.6 per cent - the highest annual growth on record for the state.

Western Australia posted a 4.3% rise in construction costs for the quarter, up on its June quarterly growth rate of 1.4% and the fastest pace of growth in more than two decades.

Queensland recorded a 3.8% quarterly rise, Victoria was up by 3.5% and SA jumped by 4.4 per cent - the highest quarterly increase across the five largest states.

Tim Lawless, research director at CoreLogic, said the surge in housing approvals had progressed to construction, causing widespread demand for materials and trades. And that was putting even more pressure on the building industry, which was dealing with a severe shortage of timber and other construction materials. In a report in The Australian, he said:

The quarterly rate of growth in construction costs is happening everywhere and is not restricted to one city or state, it's a national trend.

There was a much bigger increase in our index when the GST was introduced [in 2000]. However, outside of that structural adjustment this is by far the biggest quarterly change on record. This would be the largest market-driven increase we've seen.

Mr Lawless said Australia was in the midst of an extended period of heightened residential construction activity, and that was likely to flow through to higher costs for the consumer.

This doesn't look like a short-term spike - the surge in construction costs is due to the amount of activity that's been approved at a time when we can't import more skilled labour and are facing significant supply chain disruptions.

Mr Lawless said construction costs could rise further in the years ahead.

There's already evidence that the cost of new housing and residential construction is placing upward pressure on Australia's inflation rates and these figures will only add to that pressure.

This construction cost inflation could continue for another 12 to 18 months. It's unlikely the industry can absorb a cost increase this significant into their margins and higher construction costs will ultimately be passed on to the consumer, placing further upwards pressure on the price of a new dwelling or renovation.

The Australian Bureau of Statistics (ABS) said increased input costs lifted the cost of home construction 8% in the year to September, but different projects have very different outcomes. According to its latest producer price index, timber prices rose 12.2% in the year to September while the price of steel products climbed 23.7% and other materials, such as carpets, lifted 3.9%.

Housing Industry Association chief economist Tim Reardon said the sector was experiencing "the most acute labour shortage on record", which had pushed labour costs up 5.2% in the year to September.

Mr Reardon also said demand for new homes was likely to outstrip the supply of labour and materials well into next year, leading to even higher costs.

I don't think that we've seen the end of this price escalation cycle - it's not just a domestic issue, it's a global issue.

Bob Richardson, chairman of the Australian Construction Industry Forum, said the most significant challenges were the shortages of materials and skilled trades, as well as broader supply chain disruptions. He told The Australian:

With international borders reopening, immigration resuming and restrictions on movement interstate lifting, this will improve the constraints on supply, especially in the states where demand growth is strongest.

In its most recent Container Stevedoring Monitoring Report, the Australian Competition and Consumer Commission noted that COVID-19 had "derailed" the global container freight supply chain, with a surge in demand for containerised cargo and extreme congestion causing major disruptions and delays. The resulting shortages of timber, steel and other metal products have delayed local projects and increased the cost of building materials.

The rising costs are expected to hit new-home building in 2022. Mr Reardon said:

The increase in the cost of materials has not flowed through to an increase in costs of a new home as yet, but that will occur over the course of the next year. If builders incur those fixed costs within contracts, as new contracts are written they will include the new materials and labour costs ... those costs will be transferred through to consumers.

The Australian Construction Industry Forum (ACIF) has released its forecasts for the current financial year and beyond. Judging by the launch presentation provided on 4 November 2021, delivered by Kerry Barwise, ACIF chief forecaster and managing director of FTI Consulting, who helped prepare the report, this is one forecast that would be worthwhile obtaining.

The presentation was managed by Bob Richardson, Construction Forecasting Council chair and the managing director of Xmirus, a professional management consultancy to the construction industry. Some very interesting commentary was also provided by Eliza Owen, head of Australian research at the well-known data-driven real estate investment experts Corelogic, and Andrew Scott, head of industrials research for investment management company Morgan Stanley.

Mr Barwise is well regarded in the construction industry, and provided an excellent presentation. He managed to explain the issues facing the construction industry in clear, understandable terms, without over-simplifying.

In summary, Mr Barwise sees ongoing demand increasing in two key areas of the construction industry: residential dwellings (especially detached houses, though also for alterations and additions) and infrastructure. He sees industry constraints leading to this swelling demand not being serviced immediately by the industry, so that the effects of the demand will be spread out through to 2024 (at least). Importantly, while those two sectors may flourish, other construction sectors will see modest declines.

Mr Barwise does see this increase in demand as being something of a "spike", rather than a stronger, structural change in demand. As such, he's also concerned about "how all this ends", how the industry will exit a period of high demand in another three to four years.

Policy settings

Mr Barwise began by usefully rehearsing the key policy settings that set the framework for activity in the Australian construction sector for both FY2021/22 and FY2022/23. This relates to the Reserve Bank of Australia (RBA) using ultra-low interest rate settings to increase consumption and boost inflation to a sustainable level between 2.0% and 3.0%. Secondarily, the RBA is also seeking to boost employment, so that the wage price index lifts to indicate growth of around 3.0% at least.

In this description, Mr Barwise also described some of the assumptions he is making in these areas.

The Reserve Bank has foreshadowed that it won't be raising interest rates, while we still have a pool of capacity - I guess you might say, unemployed persons looking for a job. So they'll probably maintain interest rates at their very low levels for the next two years or so. But we are very concerned to keep an eye on what's happening also with inflation. And that has an implication for when they may change interest rates, they may be forced to in time.

Pandemic effects

Interacting with those overall policy settings are, of course, the effects of the COVID-19 pandemic, as they work their way out through government policies, and the response in various sectors of Australian - and global - industry. One of the areas that Mr Barwise sees as playing a substantial role in the future of construction is immigration. As he states:

One of the key restrictions, of course, has been the restrictions on the movement of people into and out of Australia. That's had a significant impact in terms of constraining net immigration. In fact, we had negative net immigration, up until June 2021. That is a lot of people, and that really hammered overall public population growth.

While most economists have focused on the effect this has in terms of market growth, Mr Barwise points out that, for the construction industry, it also affects supply:

That has significant implications for both demand and also for supply. We obtain an awful lot of skilled workers from immigration and, and even some unskilled workers that had an impact on wages and wages growth.

Looking beyond the immediate impact on the construction industry itself, Mr Barwise points out that the pandemic restrictions benefitted some industry sectors, but also created both job losses and falling demand in other sectors.

We can see that there have been some sectors which have grown [such as] public administration and health, and other services, through the provision - through the response to COVID. But there's also been quite a long list of sectors, which were most directly affected by the social distancing and other restrictions, which have seen sustained job losses. That includes accommodation, arts, recreation, education, and transport.

Now the trick is, is that in addition, the accompaniment to those job losses was a contraction in demand. So decision makers in those sectors are likely to be thinking very hard about what building needs they [will] have in the future.

Residential building dominates

One of Mr Barwise's contentions is that the increase in residential dwelling construction has essentially replaced the boom in mining construction which peaked in FY2013/14. As he states:

The mining boom pushed the level of work to clear more than $70 billion way back in 2013/14. Following the mining boom, there was a very conscious stimulus decision taken to cut interest rates. And we got building activity going again, in residential building, building new houses and apartments. And we actually had a housing boom - actually, it [should] really be more appropriately called an "apartment building boom". That also pushed building activity up to around about $70 billion. Almost what we'd spent in the mining boom. The new residential building [category] remains the single largest, the dominant source of building work across the economy at the moment.

One particular feature of the lift in residential dwellings, as Mr Barwise points out, is the sharp increase in spending on alterations and additions.

It's interesting to see again, when you add both new residential building and residential alterations, you get to $100 plus billion in building activity. So the point is, is that residential building dominates the agenda, in building and construction activity.

Commenting further on this, he suggests one reason for this is the ongoing increase in house prices.

We're also seeing ... a strong spike in alterations and additions. So if you can't buy a new house, the next best thing to do is to fix up the one you're in and we're expecting that to carry forward for the next year or two.

Non-residential building drifts downwards

Mr Barwise sees something of a mixed result for non-residential construction. While building in the public sector, particularly for health and aged care, has seen some uplift, the more commercial areas, including offices, retail and wholesale business construction has been declining. He concludes:

There's a drop off, even in nominal dollar terms, in building approvals in those commercial categories. And that's been offset, but not fully offset, by the increase in activity in areas including health and aged care. Though the overall pattern is quite mixed, we think it sort of suggests things are going slightly sideways and maybe even dropping off slightly.

He also offers a little more detail into what is dropping, and by how much:

The picture is a pretty mixed outlook for non-residential building. When we put that into numbers, in terms of value of work done, the growth is largely being offset by the areas of contraction. And in aggregate, we see building activity hovering around where it is now roughly around about $46 billion for the next three years. And there's, of course, some really quite strong changes in all of that. There's a 13% contraction in entertainment and recreation, you know, there's only so many casinos you can build. And we've just finished the Barangaroo casino in Sydney. So it's going to drop off from here. And we have factored in a fairly, you know, a 9% contraction on top of the 12% contraction seen last year in offices. And it is offset by some things which are growing. But as we say, in aggregate, it's tracking sideways.

Engineering construction

The overall story for engineering construction, as it applies to building infrastructure, is nearly as positive in terms of growth as the residential construction sector. Mr Barwise sums up the growth in these terms:

We're foreshadowing a very strong ramp up in engineering construction activity in the next three years. It's not going to happen straightaway. It always takes a little while to get infrastructure projects underway on average, but it will, when it arrives, contribute to a very significant expansion in the overall spend in this area. And it's also being joined as well by an increase in mining. And so that overall spend spells a very significant uplift of 9% in the year ahead, growing a further 5% thereafter, and that pushes the activity from $88 billion, right up to about $106 billion by 2024.

There are some nuances to this, of course. For example, spending on telecommunications infrastructure will decline, as the burst of activity from the National Broadband Network (NBN) is set to end soon. Also, Mr Barwise points to limited growth in spending on road construction as not being as bad as it might seem, as it's less a decline as an already high level of spending being maintained into the future.

Overview

Mr Barwise provided a number of very interesting charts during his introduction, but the one that summarises the overall picture best is presented in Chart 1.

Mr Barwise describes his interpretation of these numbers:

When we look at growth in construction activity by sub-sector, the four key categories, again, you see, residential building dominating the picture. Infrastructure construction, we've got a lovely lift coming through. And in some respects, we're hearing from industry, the outlook is actually looking challenging, because we've got two very strong booms going on at the same time, which hasn't really happened in the past. And this is presenting challenges for folks, for builders and people involved in construction activities.

We're factoring in what is quite a strong uplift, and it's going to coincide in two to three years. It's already causing problems with skill shortages, and material shortages, and cost increases, and the possibility of delays in some of these activities. And in some states, for example, in Western Australia, we've got all three, we've got residential, infrastructure construction, and an expansion in in mining activity in Western Australia. So they're dealing with three surges. So there's a source of risk.

I think the industry welcomes the work. All of this is going to contribute towards quite a significant growth in building and construction activity of about 6%, on average, which is a significant uplift. And that will help with GDP, and with jobs across the Australian economy.

The big spread

One consequence of the predicted ongoing increase in residential construction activity is that it will induce a shortage in personnel, tools and materials. Mr Barwise is of the opinion that this will see the spike in demand spread out over several years, as construction clients agree to cope with both ongoing delays and increased prices for both materials and labour.

There's a limit to the capacity of builders to deal with this surge in demand. So we think it will take them well into next year, [through] this year and into next year, to work through the spike. \

So we see that being smoothed out over the next two years ... The expected spike up in new houses is going to probably at least be 10%, which is a very strong result, on top of the 5% or 6% that we saw last year. If there's any admission of risk at the moment, we're probably underestimating the size and magnitude of the spike in residential building activity, in the next little while.

Or the other way, there's also another risk, which is we're probably overestimating the capacity of the industry to address this spike. There are already signs that in some states that it's putting a lot of pressure on builders, and that there's also a pressure on, if you like, skills, shortages of key skills, and increases in prices. And also the prospect of some delays, even in residential buildings.

Exit strategy

After providing the core presentation, Mr Barwise asked a very interesting question, which he put to Ms Owen and Mr Scott to answer:

We've always had the view, as well, that this spike is bringing forward demand. These measures, these policy measures, don't create new demand. It's important for the industry to figure out, first of all, how they're going to deal with this spike. And then what are they going to do when the spike ends? How are they going to adjust to that?

I guess I would ask them if they have any insight that they would share about that. About when - what do they see happening, when we finally do work through this backlog?

Ms Owen responded to this issue by saying:

I think just to say on the [residential] space, it's hard because the industry is dealing in such extremities. Like the current environment is so difficult because you have a spike, not just in new dwelling creation under HomeBuilder stamp duty concessions, and the first home loan deposit scheme for new homes.

I think it's very clear looking at the finance data that that has created a concentration, a vacuum effect if you like. So you have an industry that's challenged by labour costs, supply chains, and then all of these bottlenecks in development. But then as you say, as the housing market performance becomes more volatile, as well, we see more extreme reactions in the construction space.

So I think there could even be something to, you know, making that case to government to timeout these policies in such a way that it does help ongoing demand. [And] that is perhaps a bit more moderate as well.

Mr Scott added some very significant detail to what Ms Owen had to say:

I think it's really important to remember that we went into this already, in the end, we went into COVID already under what was a typical housing cycle decline ... None of us predicted this, but a global pandemic actually derailed that [decline] and got the housing market firing again. So we didn't have that [extended] period of decline, and that underbuild that we arguably needed after absolute record levels of activity - never before seen levels of activity.

The other thing that I think is really interesting to sort of factor into that is we've had this absence of migration and Kerry mentioned a negative migration for a period now. We spent a lot of time speaking to participants through all elements of the housing market, through the COVID evolution, and really trying to understand the [time] gap between a new migrant and a home buyer. It's not immediate. There is the argument, you would guess these people need to be housed somewhere. But generally, discussions we've had, the best we can tell, it's a couple of years. You land in the country, you figure out your employment situation, you understand the area, and it's a couple of years between new migrant and home, a potential home buyer. So the period that [low level of migration] starts to bite [in the market], isn't until early next year.

Future thinking

At the very end of the presentation, the discussion was taken up by thoughts about the future of construction. As this is an industry not known for adopting new technologies with any kind of alacrity (the history of the adoption of Building Information Modelling is a case in point), it was surprising to find how forward thinking both Mr Scott and Ms Owen were.

In particular, Mr Scott mentioned that climate change had to be a growing concern for the industry.

I think one of the things that these points of tightness prompts is a rethinking about how we build. At times, the construction industry isn't given credit for being particularly forward thinking. But I think these times do bring some forethought, so that we're seeing a lot of discussion about the future of building. Do we move to more of a systems-based approach in housing? Maybe it's modular, potentially even 3D printing.

The other thing that I think plays into that is really around decarbonisation of the building space. And it's something that I can tell you is coming, whether it's the actual making the building itself more carbon conscious, but also materials. In these things Europe generally leads, and certainly our European colleagues are very much focused on decarbonizing the cement chain. That probably brings an element we've never thought about, which is, in cases where there is concrete cement, where is my concrete sourced from? How do I think about that? And while perhaps it's not that relevant, we're already hearing here in Australia, particularly if you're building for a sovereign wealth fund, a large super fund, that that is important.

Ms Owen agreed with Mr Scott that there needed to be an increased focus on environmental concerns. But she also emphasised just how important innovation has become.

More broadly, there does need to be a real emphasis on innovation, increased productivity, and kind of dealing with the materials and labour that you can get, that you have access to in the current period. And yeah, I think that's probably the main thing for me as well: engaging with government on really, you know, supporting the efficiency and productivity of the industry too, particularly with on-site training. I think is really important if you have the opportunity for that kind of job creation.

Analysis

Forecasts always come from a particular context. In the context of the construction industry overall, the forecast for a good FY2021/22, followed by a slightly better FY2022/23 seems very apt.

From the perspective of the Australian hardware industry, however, it's likely that a slightly more cautious forecast would be helpful. Hardware retail is not going to gain so much directly from infrastructure investment, and is much more sensitive to a potential switch from detached dwellings to large apartment buildings, for example.

To see what we can take from this forecast information, we really need to get back to certain fundamentals of the markets and the economy.

To start with rising house prices, there are three basic reasons why any price increases: innovation creating more value, scarcity of supply, usually linked to increase in demand, and increased costs. To those we can add a fourth, where value increases through context: a new use is found, or a new need is answered.

It is fairly evident that of those four, it is the last which has had the most influence on house prices since mid-2020. The COVID-19 pandemic has seen the utility factor of the house increase substantially, to include refuge, office, school and comprehensive entertainment centre. Given those increased pressures, and the decrease in other expenditures (e.g., dining out, holiday travel, commuting, events, etc.) it's no wonder there has been such a surge in prices.

The question is whether this increase in prices is structural or adventitious. If it is (at least in part) structural, then price changes will tend to be persistent. If it is adventitious then it will likely increase and decrease in influence along a curve.

The answer seems to be that the perceived change in value is likely to be mostly adventitious, but with some structural elements. For example, work from home (WFH) will become a permanent feature of employment, but it will likely mean an average 50% of employees will WFH for two to three days a week, outside of areas where physical presence is required. Equally, it won't be surprising if dining out, after an initial surge through to the end of 2021, will return at a reduced level. Balancing that out, though, it's probable that in 2023 we'll see a sharp uptake in holiday travel outside Australia.

The revaluation of housing that could occur in the second half of calendar 2022 could see house price increases slow radically, if not retreat below a 3% annual rate. The real, future problem, however, is what could happen in late 2024, as homeowners are forced to consider the expiration of five-year fixed interest rate mortgages in an environment of increasing interest rates.

Which brings us to those interest rates, and the policies of the RBA. The RBA has stated it plans to keep interest rates low until the current rate of inflation is clearly above the 2% level, which in the past was interpreted as meaning over 2.4% or so. This is linked to the central bank's aspirations to see the rate of growth in the national wage price index return to a reasonable level, which is sometimes interpreted as being at least 3.1% or so. There is also a third goal, which while not so prominently stated is clearly important as well: lifting business investment as a percent of gross domestic product (GDP). It is currently at historic lows not seen since the recession of the 1990s.

There is one single principle that unites these three diverse goals: growth. The reality is that Australia has seen low growth in GDP since the global financial crisis (GFC). A panel of 23 leading Australian economist assembled by the Australian Broadcasting Corporation (ABC) provided forecasts in July 2021 (before the second, Delta wave of COVID-19) that averaged out to 4.0% growth in FY2021/22, followed by 2.6% growth in the following year, and 2.2% growth in FY2023/24.

In very simple terms, GDP and productivity are both seeing slow growth due to a lack of investment. Instead of investing today in hopes of obtaining higher returns in the future, most Australian businesses concentrate on optimising their current returns through cost-cutting and consolidation rather than expansion.

A further problem is that, as Australia has comparatively high corporate taxation, the economy is reliant on the government investing those extra taxes into productive and profitable enterprises. There is nothing wrong with that in principle as a governmental system, at all. But the difficulty is that in Australia, the federal government continues to invest more in supporting legacy industries than in high growth industries that could generate better returns for the economy.

A good example is the very low level of investment provided for the NBN, even though that turned out to be one of the elements that saved the Australian economy (try Zooming at 1mBit/s) during the COVID-19 pandemic lockdowns.

Focusing on house prices and the construction industry, another way of looking at this is through the prism of what economists call self-liquidating and non-self-liquidating loans. Self-liquidating loans are common in business, and the typical example given is a retailer borrowing money to buy stock for a seasonal selling season. At the conclusion of the season, the retailer repays the loan with the proceeds from sales. Genuine value has been generated for the economy, and the extent of that value will depend both on market conditions and the level of productivity.

A non-self-liquidating loan is usually used to buy fixed assets, such as a house. The loan is drawn to pay for an existing building, and paid off over time based on activities performed that have little reference to the asset itself. There is no real value delivered to the economy, and any profit made relies purely on the market, and not on productivity.

Of course, you can make the case that something different happens when the loan is taken out for the construction of the asset. People are employed, something of value is built (though a large proportion of the loan will be for the land itself, which does not return value). The problem with this, however, is that construction is an industry that returns the least value in terms of productivity gains of just about any industry.

So, to conclude, in the medium- to longer-term, boosting construction can create instability that will in the end harm the construction industry itself. The difficulty with that kind of instability is that once it has begun, it is very hard to get out of. Effectively, as more and more credit goes to non-self-liquidating loans, self-liquidating loans become increasingly risky, making it very difficult to reverse the trend.

Conclusion

Finally, HNN would like to recommend that if forecasts relating to the construction industry are useful to your enterprise, you consider buying the information packages supplied by the ACIF. (For the record, HNN has no commercial arrangements with ACIF of any form.) We think these are reasonably priced, and provide useful, highly accessible information.

The Construction Market Report and Customised Forecasts Dashboard November 2021 is available for $600. The Australian Construction Market Report on its own is $350, and the Customised Forecasts Dashboard is $300.

You can preview the products on YouTube as well:

Houzz has long been popular with renovators and home builders looking for inspiration. A lesser-known part of Houzz is its "Pro" services, which help to connect people with projects they need done to the people who can make that happen. This includes architects, interior designers and tradespeople.

The flow of information going through Houzz, from people posting pictures of their homes and renovations, and the work projects that cycle through its website and mobile apps, means the company is in a unique position to be aware of emerging trends.

Recently Houzz's editor for Australia and New Zealand, Vanessa Walker, produced a short video on YouTube which outlines some of the insights the company has developed about how tastes are developing during this time of pandemics.

You can view that video (it's less than eight minutes) here:

The local trends

Ms Walker described six major trends specific to Australia and New Zealand, as well as a range of additional trends that were becoming prominent globally.

The six Australian and New Zealand trends she spotted were:

"Feel good" furnishings

Ms Walker sees this as largely being a revival of some trends not really seen since the 1970s, with shapes such as arches and rounded surfaces.

This is a trend that did see a resurgence just prior to the COVID-19 pandemic, but it has likely been accelerated by a desire for comforting luxury, and perhaps a return to childhood memories by older Australians. At its best, it's fun, with a touch of Austin Powers-like irony.

Square tiles

In past years we've seen the subway elongated rectangle become prominent, but Ms Walker thinks the time has now come for the humble square tile to regain past popularity. As she puts it:

While organic shapes are perennially popular, we anticipate more square tiles appearing in fashion forward kitchens and bathrooms with their linear conformity, offset by the lead style characteristics such as natural colour variations, crazed glazes and rippled surfaces. Of course, one of the benefits of using square tiles is their relative affordability. And the way they lend a streamlined graphic edge to an interior as seen on the image on the right.

It is perhaps worth noting that this is also a style of tile that is easier to DIY on walls and similar surfaces. Ms Walker sees tiles in general becoming more popular, including for bench surfaces and even on furniture, such as the tops of coffee tables.

Slim Shaker cabinets

While the definition of what can be called "Shaker" seems to have shifted rapidly over the past decade, these are distinctive kitchen cabinets. As Ms Walker describes them:

The slim Shaker is perfect for bridging the gap in heritage homes that require modern interventions. We're talking about the new slim Shaker cabinet profile, which is like the old Shaker, but with finer, narrower features, and with recessed handles or subtle finger pulls.

It's a way around just plonking a modern kitchen down in an older home, with the additional detailing helping the cabinets to "sit into" the surrounding room, instead of seeming jarring.

Wallpaper

Ms Walker points out that this is not the use of wallpaper as a singular element that dominates and defines a room. Instead, as she describes it:

Now it's about layering wallpaper with other highly textural elements. So the eye sees a confusion of colour and movement. And it's just worth noting here of course, the confusion is carefully created with either restricted colour palette, or with materials that work well and complement each other. So it's a look that, as you know, only an interior designer can really pull off very well.

Creative brickwork

The increase in interest for non-standard bricks owes its origins in part, according to Ms Walker, on the stresses in the current building trades. With something of an increase in new home builds, and an ongoing shortage of timber for houses, more home builders are turning to brick as an option, she suggests. These new bricks include a wide range of shapes, including tiled and curved patterns, as well as combinations of new colours, such as chocolate fudge and flame red.

Eco-product subscriptions

While we think that Ms Walker has helped identify some coming trends, we're not entirely sure if this is a general trend we will see so much of during 2021. It is sensible and a good idea, with Ms Walker giving the example of liquid soap being distributed as a tablet you combine with water in a custom dispenser, it's just difficult to see Australians (at least) changing their admittedly wasteful supermarket habits.

International trends

The key trends that Ms Walker sees migrating in from overseas include:

Different sets of chairs, where similar types of chairs in a range of colours are combined into sets, often through a house.

Little living rooms. Rather than having just one main gathering space, a proliferation of small spaces to chat and relax in.

Creative storage. More and more furniture is being designed to have some form of in-built storage, as an aid to decluttering open spaces.

A return to black. Black furniture and fittings are enjoying a comeback.

Mid-century modern. This is becoming the new "classic" look, replacing the 1920s and 1930s in many houses. It's the "serious" furniture, for serious, impactful rooms.

Folding screens. Perennially popular, screens provide a way to better divide up spaces.

Minimus lighting. This is the virtual deconstruction of light fixtures and fittings, removing the clutter of cords and switches, and leaving very little beside the LED source.

The forest effect. As confinement to the house becomes more of a concern, consumers are seeking out delicate shades of green in forest patterns.

Analysis

The overwhelming change that is taking place in homes is that they are becoming increasingly the central locus not only for family activity but also (when permitted) of social activity. It's not a surprise that shapes and styles from the 1950s and 1970s are popular again, as these were periods when home entertaining was at its peak.

Alongside that is the strong move to make homes feel more like refuges from an increasingly stressful outside world, while at the same time working to make them more convenient and functional.

To compile the list of top gardening trends based on the most popular posts on Instagram, the research team from Love the Garden (formerly Scotts Australia, home to brands such as Osmocote, Lawn Builder, Debco and more) analysed over 100 different gardening related hashtags. Where duplication arose due to singular and plurals, as well as spelling variations, the hashtag with the highest number of posts was included in the study, and the others were omitted to avoid duplication.

To uncover the emerging trends, the team set the metric of 100,000 posts as the limit before a trend becomes established, anything under 100,000 posts was classed as emerging. (All figures were correct as of 1st August 2020.)

Here's what the Love the Garden team discovered. The top 10 up and coming gardening trends include the following:

1. #balconygardening - 96,817 Posts

One in 10 households in Australia have no access to a private or shared garden, but what many people living in urban areas do have is a small outdoor area on an apartment balcony or patio. Balconies can make an ideal space for a garden, and balcony gardening is the top up and coming gardening trend right now.

Pictured is a balcony garden from @home.decorationstyle on Instagram

2. #wildgarden - 91,777 Posts

The second biggest trend in the up and coming list is the wild garden. Days spent pruning, mowing and meticulous garden maintenance are on the outs - there's so much else to enjoy outdoors and there are garden alternatives that don't require the effort.

3. #insideoutside - 83,731 Posts

This trend has been gaining traction in Australia for years, so it's no surprise to see it at number three on the list of up and coming garden trends. People living in Australia spend so much time outdoors that many have already adapted their home decor and styling to flow from one space to another.

4. #tinygarden - 80,752 Posts

Many people don't have a private garden or outside area or have to make the best use of a very small space. Just like those innovators making the most of small spaces indoors, the tiny garden trend is blooming at number four in the list.

5. #raisedbedgarden - 78,910 Posts

This trend is simple and straight forward and can look great too. It's no surprise that the raised garden bed is a real up-and-comer on Instagram.

What the Instagrammers say: "The obvious benefit of raised garden beds is the height, preventing aches and pains from bending down and tending to a traditional garden. Additionally, keeping crops up and away from pests like slugs and snails, cats and dogs will assist in preventing them from being attacked or damaged."

Pictured is a raised garden from @old.man.sara on Instagram

6. #permaculturegarden - 76,576 Posts

A holistic approach to gardening, permaculture gardening means "permanent agriculture" and it's defined as working with natural forces - wind, sun, and water - to provide food, shelter, water and whatever else a garden needs.

7. #whitegarden - 51,750 Posts

The clue really is in the name with this one. With just a quick scroll through Instagram, users can see that against a backdrop of dark green, white flowers are really eye-catching. There's something so pure and classic about them.

8. #windowsillgarden - 48,432 Posts

This really is one for those of us who don't have much space at all. Lack of space encourages real creativity. This isn't a huge trend in Australia but it's developing - our housing style generally doesn't suit windowsill gardening, except perhaps an herb box outside the kitchen window.

What the Instagrammers say: "With more time at home than usual, we've all started to realise the importance of home and the space around us. With outdoor space in cities at a premium, a windowsill garden is the perfect way to utilise what room you do have to bring that much needed element of 'green' to our city lives."

Pictured is a window sill garden from @windowfleur on Instagram

9. #greygarden - 45,124 Posts

Not satisfied with being one of the biggest interior design trends of the moment, grey is really beginning to make an impact in garden design too. It's not that surprising that this trend has made its way into the list of up-and-comers.

10. #cottagegarden - 37,021 Posts

Who doesn't dream of a quaint country cottage to escape to every night or maybe just on the weekends? A cottage vibe can be created in any garden. Judging by the number of posts on Instagram, plenty of people are doing just that with this growing trend.

Current trends

Sustainability a key word on many people's lips at the moment so it was no surprise to see #growyourown on top of the list as the biggest, overall trend. The same goes with #organicgardening at number 3.

With so many of us living in urban areas, #urbangardening is number 2 and #indoorgardening at number 5. Both #verticalgarden and #containergardening are in for green fingered space savers, while some classic styles including #japanesegardening and #countrygarden also make the list.

What the Instagrammers say on #verticalgardening: "If you live close to the city, you know how rare it is to stumble upon rentals that offer any outdoor space. If you're lucky, you have a modest balcony or a communal outdoor space. So how do we best make use of our small urban spaces? Look up! The best thing is, thinking up doesn't require any fancy trellis structures (which tend to be expensive if it is not a DIY project). Most spaces already come with what is required, equipped with fencing, brick, railing, stairs, an overhang deck, or an awning. Utilising all wall space and existing structures can dramatically change the landscape from a concrete box to a vertical garden oasis."

Pictured is an image from @fauxfarmfixer on Instagram, part of the #sustainability garden trend on Instagram

What makes the top of the list? It's all about the colours with #greengarden in at number one and #bluegarden in at number three; #colourfulgarden makes it in at number six with #redgarden also sneaking into the top 10.

The users of Instagram have spoken. We know it's all about colour when it comes to the top hashtags. We can see that plenty of the up and coming trends focus on space saving, a dash of colour and getting back to nature in a genuine way.

And in the all-time stakes? Sustainability is really coming to the fore once again, along with some of the classic styles that endure for a lot of people.

After years of hopeful forecasts, it seems that the Smarthome market sector is now truly poised to take off over the next three years. Australian emerging technology consultancy Telsyte runs an annual survey, the Telsyte Australian IoT@Home Market Study. The results for its 2019 survey indicate that in the the Internet of Things (IoT) market in Australian homes grew by 57% during 2018, and is now a $1.1 billion market.

The Telsyte IoT survey is based on a sample of 1025 respondents over the age of 16 years, who were surveyed in November and December 2018. Analysis included industry interviews, financial reports of industry companies, and product reviews.

The $1.1 billion figure represents a sharp increase of over 30% on 2017 results. According to Telsyte, much of that growth has been driven by the widespread adoption of "smart speakers", such as the Amazon Echo and Google Home series. The survey results shows that Google Home has a large market share of 72%, followed by Amazon at 15% and the Apple HomePod at 5%. Telsyte sees that growth continuing, with five million Australian homes using smart speakers by the end of 2019.

A survey conducted by Voicebot.ai, reported similar results, with Google Home representing 68.2% of the market, Amazon's Echo 14.2%, and the Apple Homepod 5.5%. Voicebot suggests that Google's entry into the market six months prior to Amazon accounts for much of its market dominance.

The Telsyte survey showed a broadening spectrum of use of smart speakers. Where in previous years the main use was for playing music, the main use in 2018 was said to be "getting everyday info".

Beyond simple adoption, the Telsyte survey indicates that over 1.2 million are regarded by the company as being "invested" Smarthome users, with five or more IoT devices in the home. The company forecasts this will increase sharply by 2023, with most households owning more than 15 connected IoT home devices. That growth should result in a Smarthome market worth around $3.9 billion by 2023.

An important growth driver up to the present has been increasing energy costs, which has driven homes to adopt "smart battery" technology in the home, complemented by solar panels. Those products represent around one-third of the current Smarthome market, the company says.

The other key driver for the Smarthome is a desire to make homes safer, which often leads to the installation of an integrated network of video monitors and alarms. In the medium term, Telsyte sees security and energy savings as driving around 40% of all Smarthome purchases.

Future growth

Moving into the future, Telsyte expects that the Smarthome market will eventually become dominated by connected appliances. By 2023 this category will represent 40% of the Smarthome market, by revenue.

The company also sees opportunities for installers as increasing. Currently, much of the growth is in simple DIY applications, but as systems become more complex and more integrated, homeowners will increasingly rely on professionals.

Another growing area will be subscription services, with homeowners willing to pay for security and energy use monitoring. Telsyte also sees the development of "smart shopping", using voice-actuated devices, creating a more convenient interface than mobile phone based shopping.

Home value

Smarthome concerns are already influencing the home buying and renting decisions of Australians as well. The survey indicates that the major concern, for 58%, is that homes will have an adequate National Broadband Network (NBN) connection. That is closely followed by concerns over the number of powerpoints in each room. Interestingly, around 30% also see "hard wired" network connections (CAT 5e/6 cabling) in homes as being an important factor in choice.

Current market

Outside of the Telsyte survey, there are clear signs that some hardware retailers are gearing up to take advantage of a surge in the Smarthome market. For example, we've seen Bunnings launch its Smarthome shopping "pod" - though this is currently active at only one store in the northern outer suburbs of Melbourne.

Yet Bunnings - and potentially many other home improvement stores as well - are likely to encounter some difficulties in this category. One major reason for this is that Smarthome at the moment is very much about consumer electronics, which is one of the fastest moving, most price-aggressive categories in retail.

Security cameras

With its "10%" price guarantee, Bunnings would appear to have played it cautiously in Smarthome. For example, when it comes to security cameras - a popular category - it has stayed away from the more marginal brands, choosing instead the familiar Swann systems, Amazon's Ring, and Arlo. This means the retailer has avoided the low-end layer of security cameras, offered by online suppliers such as Kogan, which provide wireless, cordless cameras for under $100.

Even with all this caution, Bunnings has not been able to keep up. As the illustration shows, on 13 October 2019 Bunnings was selling the single-unit first generation Arlo with its hub for $399. Amazon Australia was selling the identical unit for $395.31, delivered. (In either case, it's not that great a deal. The unit being sold is the Arlo Pro 1. The other units on sale are the Arlo Pro 2, and Arlo announced the release of its Pro 3 system in August 2019.)

There are two other aspects that emerge from this comparison. The first is that one reason why the cost is so low for the delivered Amazon product, versus the in-store Bunnings product, is that this is the sale price based on a Prime membership - which provides free delivery.

Secondly it is notable that Amazon, of course, knows that the purchaser owns three different smarthome devices, with which this product interacts. Furthermore, Amazon would always know if this customer has an Arlo product connected, even if that product had been purchased from Bunnings - while the reverse is certainly not true. It is a case of a superior access to network effects, and outlines an area Bunnings is only beginning to understand.

Lighting

The move by Bunnings into lighting fixtures was one of the successful inspirations that came out of competing with Masters Home Improvement. Masters was the pioneer of comprehensive lighting displays in home improvement stores. Bunnings has done well in this category, taking marketshare from pure category players such as Beacon Lighting. But how will it compete in Smarthome lighting?

As with security cameras, Bunnings has chosen to focus on established brands, mainly the Philips Hue system, with some additional accessories from Arlec. This is a very limited approach, and it seems unlikely it will enjoy long-term success.

To see why, we need only look at the Smarthome lighting systems offered by IKEA, under the Tradfri internal branding. These were released in the UK marketplace (also 240V) in 2017, and have only been released in Australia during 2019, and not all devices are available.

To begin with, the smart lightbulbs in the Tradfri range are less capable than some of the Philips Hue range, but they are also significantly less expensive. The least expensive Philips Hue bulb at Bunnings is the White Smart LED Dimmable Bulb with the B22 bayonet fitting at $22.00 (same price, but delivered, from Amazon). The least expensive bulb for IKEA Family members in October 2019 is $11.99 (non-Family: $14.99). The bulbs are nearly identical, except that the IKEA bulb has an output of 1000 lumens (72W), and the Philips output is 880 lumens (60W).

That price difference continues on through most of the range. For example, a Philips Hue motion detector costs $45 at Bunnings, while the IKEA Tradfri alternative is $20.99 for IKEA Family members. A Tradfri wireless dimmer is $16.99 for Family members, and the Hue equivalent costs $35 - though the Hue device is more capable.

For automation, bulbs in both the IKEA and the Philips ranges operate on the Zigbee low-power wireless protocol. This means that they require a bridge to interact with wireless networks, so as to indirectly access the internet. The gateway for Tradfre costs $39.99 for Family members, and the Hue gateway costs $69.00.

The price difference goes deeper than this, however. Philips does not make light fittings, while IKEA does. It's pretty obvious for anyone setting up a smart lighting system that having to buy smart bulbs - even with LEDs, which have a life span of over 10 years - is not as cost effective as buying smart light fittings. IKEA has taken advantage of this by offering a set of light controllers that integrate with special light fittings, which use standard lightbulbs. Those fittings include LED lightbars and shelf lighting.

Beyond that, IKEA is currently selling in the UK and North American markets smart blinds, which are both cordlessly powered and controllable through the Tradfri system. These start at just USD129 ($190), and are DIY installable. That contrasts with an average price of well over $400 for most other remote systems - which often don't include the blinds themselves.

In short, the IKEA model of own brand and self-supply is well suited to the Smarthome market in its current stages. The Bunnings approach of, at best, captive brands such as Ozito, Matador and Tactix, is less suited to it.

The future

Exactly how the Smarthome market is going to play out over the next three years is difficult to predict. We could say that both FY2017/18 and FY2018/19 were a time of early adopters. What we've started to see in FY2019/20 is the beginning of the early mainstream adopters.

Generally speaking, where Bunnings has done best in developing, innovative markets, is by entering about a year after the market reaches the early mainstream phase. The company comes in at that time with strong disaggregation resulting in lower production costs, tied to strong logistics.

The problem for Bunnings with the Smarthome market is that it will continue to undergo rapid development. By 2023, it is possible the Smarthome as such will disappear, and we will just be talking about "homes" - Smarthome features will simply be expected, and installing them on older homes will become a focus for renovators. In home improvement terms, it will move from being a consumer/DIY focus, to a consumer-driven trade focus.

One choice Bunnings could make over the next three to four years, is to forego much of the revenue and profits it could make from the Smarthome category, and move its focus to more familiar and reliably profitable areas elsewhere. The other main choice would be to develop and extend its current capabilities into a kind of "burst marketing", where it could take on new product lines, develop and bring them to market over 12 to 18 months, then move rapidly on to the next thing.

For the rest of the home improvement retailer market, one approach would be to start working out how to capture more of the trade-based Smarthome market in 2021. That would mean developing supplier relations with companies offering Zigbee switches that integrate with standards such as the Amazon Echo and Apple's HomeKit. There is going to be a high demand for information about Smarthome by 2021, and retailers that can offer renovators and new home builders some guidance would likely find this to be a profitable market.

Spend on kitchen renovations grew by 16% in the past year to a median spend of $20,000, according to the annual Houzz & Home Australia survey of more than 8,800 respondents.

Kitchens are the most popular rooms to renovate, followed by living rooms (26 and 23%, respectively). Bedrooms, bathrooms and laundries were all equally popular at 17%.

Overall, renovation activity remained strong through 2018 with half of homeowners on Houzz renovating (50%) an average of three rooms per project, at an overall median spend of $20,000.

At the higher end of the market, renovation spend in the 90th percentile reached $180,000. Baby Boomers (ages 55-74) and Gen Xers (ages 40-54) combined represent over three quarters of the renovation activity (79%), at a median spend of $21,000 and $23,000, respectively.

Nearly half of renovating homeowners planned to continue or begin renovations this year (47%), with 41 and 35% of Gen Xers and Baby Boomers, respectively, anticipating new projects. Nino Sitchinava, Ph.D., Houzz principal economist, said:

Pent up demand continues to drive renovation activity, while spend on discretionary projects such as kitchens continues to grow, signalling strength in consumer confidence.

As homeowners consider whether to renovate their current home or to purchase a new home, the top two considerations for renovating are to stay in their current home or area, outranking return on investment. Wanting to stay in the current home is the biggest decision driver for Baby Boomers and Gen Xers, whereas Millennials (ages 25-39) chose to stay in their current home and renovate because it was more affordable than moving.

Funding renovation projects

The majority of renovating homeowners pay for renovations using cash from savings (76%), followed at a distance by credit cards that can be used anywhere (19%) and cash from home mortgage refinance (13%). Reliance on credit cards is higher in Millennials than in older generations.

Finding the right professionals

Nine in ten renovating homeowners hired a professional in 2018 (90%), with electricians, plumbers and carpenters in greatest demand (62, 51 and 40%, respectively). Baby Boomers are more likely to hire professional help than Millennials by 10% (93% versus 83%).

Making "smart" decisions

Over one in ten homeowners prioritise smart technology during home renovations (12%), purchasing products like home assistants, streaming media players and security cameras. Baby Boomers are more likely than Gen Xers and Millennials to rank smart technology as high priority (15% versus 10 and 9%, respectively), however Millennials are still incorporating the most home assistants (22%), compared with one in ten Baby Boomers (11%).

Improving energy efficiency

While improving the design and functionality of a home are the top priorities during renovations, over two in five homeowners prioritise energy efficiency (43%), replacing windows and insulation, for example. This is particularly important for Baby Boomers when compared to Gen Xers and Millennials (50% versus 39 and 36%, respectively).

The final touch

Nearly two-thirds of renovating homeowners in 2018 also decorated or furnished their home the same year (65%). Millennials were significantly more likely to decorate following home renovations than Baby Boomers (73 versus 60%), purchasing products such as pillows, throws and interior furniture.

About the Houzz & Home Survey

The annual Houzz & Home survey covers interior renovations and additions to home systems, exterior upgrades and outdoor projects. Data gathered includes historical and planned spends, professional involvement, motivations and challenges behind building, renovation and decorating projects, as well as planned activities for 2019. The 2019 study includes over 8,800 respondents in Australia, providing insights into the home improvement activity of the more than 40 million monthly unique users of the Houzz site and mobile apps. The Houzz & Home Survey was sent to registered users of Houzz Australia and fielded in April 2019.

The full report is available here:

Related:

Australia's small to medium enterprise (SME) sector seems set for tough conditions through the rest of calendar 2019. That's the indication coming from the National Australia Bank's (NAB) quarterly survey of SMEs, which reported a current deterioration in current business conditions, and a likely indication of some deterioration in future business confidence for this sector. Click here for the report:

Confidence

The NAB survey indicates that in the short term business confidence increased, lifting by three points to a net score of +3, following two quarters of no growth. Across the states and territories, Western Australia shows both the largest decline in business conditions, and the highest increase in business confidence, both exceeding 10 points.

South Australia and Queensland show a similar trend, though more subdued. New South Wales shows the second highest decline in business conditions, and Victoria is the only state to show a positive increase in both business conditions and business confidence, though the boost in confidence is the smallest of all the regions.

However in its commentary, NAB warned that the Australia-wide increase in confidence might be short-lived, with June 2019 numbers pointing to a decline in optimism:

We think this effect is likely to be short-lived with the NAB monthly business survey for June having shown an unwind in confidence.

Conditions

In contrast to this confidence, business conditions as reported declined sharply, down by four points. This mainly had to do with smaller firms. Low-tier firms reported a decline of eight points and mid-tier firms were down by seven points. High-tier firms, in contrast, reported an increase of two points.

(For the NAB, low-tier firms have turnover between $2 million and $3 million, mid-tier have turnover between $3 million to $5 million, and high-tier turnover is $5 million to $10 million.)

Breaking down business conditions into trading conditions, and prospects for employment growth, there was a similar size effect. Low-tier firms reported a drop of seven points for trading conditions, mid-tier firms a drop of one point, and high-tier firms an increase of six points. For employment growth, low-tier firms indicated a decline of 13 points, mid-tier firms a fall of five points, and high-tier firms were done just one point.

The third component of business conditions, profitability, showed a different pattern. Mid-tier firms indicated a fall of 14 points, low-tier firms only four points, and high-tier firms were neutral at 0 points. All three components are now at levels not seen since the period 2013 to 2014.

This could be in part a reflection of forward orders, with high-tier firms experiencing a reported decline, mid-tier firms a significant increase, and low-tier firms generally flat growth. However, capacity utilisation for high-tier firms is close to 82, the highest it has been since 2011. Both low-tier and mid-tier firms are closer to 78, the range they last reached in 2016.

Tradies

Australia's national broadcaster, the ABC, in its online news content has appeared to interpret these numbers as having particular reference to tradies. The ABC managed to track down and actually hold conversations with one electrician and one plumber, both from Sydney.

According to this sample of two, electricians are not doing well due to a decline in multi-dwelling construction, while plumbers are benefitting from an increase in commercial work.

The ABC also reports that:

The NAB survey found tradies with four or five employees are among the hardest hit.

The ABC also quoted NAB chief economist Alan Oster as saying:

The things that worry us are, one, it [business conditions] has come down a lot, and two, it is particularly the small end of town that has come down a lot - and that makes us nervous.

It's the tradies, and they tend to lead the economy - and that's not a good sign.

Analysis

The increase in confidence for Q2, as suggested by Mr Oster and others, might have to do with the May 2019 election that concluded a period of political uncertainty which started in the final quarter of 2018. However, many believe this confidence to be misplaced, as economic stimulus remains a matter of interest rate cuts and decreases in middle-income taxation, rather than actual new government spending.

In a survey of economic conditions for FY2019/20, of 20 leading Australian economists brought together by "The Conversation" website, gross domestic product growth of 2.1% was forecast, with an unemployment rate of 5.3%, wage growth of 2.2%, inflation at well under 2.0%, and the risk of a recession was set at around 29%.

A further complication to the economic situation is that campaigning for the 2020 US Presidential election will shift into high gear in November 2019, which could contribute to the likelihood of globally unfavourable shifts in trade policy by the US and its trading partners.

While Veronique Laury may be on her way out as CEO of UK-based European home improvement retailer Kingfisher, her legacy is likely to be a lasting one. The current stage of capitalism judges CEOs more by share performance than company building, and it's the latter where Ms Laury has excelled.

One part of Ms Laury's legacy is the GoodHome report. This is a comparatively brief document, based on a survey of 13,489 respondents across 10 European nations, backed up by a further 78 in-depth interviews. The report seeks to determine what role "home" plays in the lives of Europeans, and what elements of home are most important to families. Click here for the report:

To summarise some of the key results:

Policy suggestions

The GoodHome report ends with four suggestions for how local and national governments might formulate better policy to promote happy homes.

Stable tenure

Being in control of where you live is more important than simple home ownership. The report states in part:

This sense of control is harder to achieve in rental markets that are relatively unregulated, where tenancies tend to be shorter and tenants are less able to make improvements to the property. Encouraging longer, more stable rental tenures, such as those common in Germany, where a high proportion of renters also score highly for home happiness, could be one way forward.

Adaptability

Where most houses are built to a fixed form, the report suggests they should be build so that they can more easily be adapted to change circumstances.

Green access

Homes need some kind of private or shared green space in order to satisfy the needs of families.

Skills and training

Because being able to make a place your own is so important, the report suggests that more attention be paid to this process in schools. This might not mean "traditional" woodworking and metalworking skills, but it should include familiarity with the basics of maintenance and assembly.

Online platform for home renovation and design ideas, Houzz has released its 2019 AU State of the Industry report. It provides an outlook on 2019 as compared to 2018 performance for residential renovation and design businesses, including builders, architects and interior designers. The data is based on survey results reported for nearly 300 professionals in the Houzz Australia community.

The study revealed that a majority of firms across the industry are optimistic about business growth in 2019, following positive 2018 results. Nearly three-quarters of the industry anticipates that gross revenue will increase in 2019 (74%). Over half of businesses expect that revenue will grow by more than 10% (58%). Interior designers have the most confident view of 2019, with 84% of firms anticipating an increase in gross revenue, followed by home builders (73%). Building designers have a slightly less positive view of gross revenue growth overall with just 47% expecting an increase.

Nino Sitchinava, Houzz principal economist, said:

Residential construction and design service professionals in Australia are gearing up for another robust year. Positive expectations follow overall revenue growth in 2018 despite headwinds in managing consumer concerns over cost and unreasonable expectations.

Positive expectations for the year ahead follow a successful 2018 for firms across the industry, with more than two-thirds of businesses reporting that gross revenue met or exceeded expectations (69%). In fact, actual gross revenue increased by 10% or more for nearly half of businesses (45%). Interior designers saw the largest increase, with nearly half of businesses reporting that gross revenues grew by 15% or more from the year prior (45%).

To support revenue growth, firms plan to increase marketing and sales efforts and bring in larger budget projects (60% and 46%, respectively). The biggest change, however from 2018 to 2019, is a heavier reliance on improving employee productivity. Some 29% saw this as a key strategy in 2018, but that has risen to 38% in 2019.

Revenue growth was not without its challenges, led by increased cost of doing business (overhead, wages, etc.), managing consumer concerns over cost and managing consumer expectations (30%, 29% and 27%, respectively). That said, one-third of businesses were able to expand and hire new employees (32%). Home builders were the most likely to increase headcount (50%), followed by interior designers and building designers (24 and eight per cent, respectively).

The full 2019 Houzz AU State of the Industry report can be found here:

Houzz 2019 State of the Industry - Australia

The Houzz AU State of the Industry Study was conducted among home renovation firms in the Houzz Australia community that offer services related primarily to residential renovation and/or design. The study was fielded in December 2018 and January 2019. Total participants equalled 273.

Houzz says it connects millions of homeowners, home design enthusiasts and home improvement professionals across Australia and around the world. With the largest residential design database in the world and an active community empowered by technology, Houzz was created an easy way for consumers to find inspiration, get advice, buy products and hire the professionals they need to help turn their ideas into reality.

To read more about Houzz in Australia, go to:

Houzz talks marketing - HI News, page 83

Kitchens are approaching a new inflection point in their development. As HNN has remarked in the past, it's quite common for a phase when all-white kitchen styling dominate the market to be followed by a period of innovation and change.

While that relates mostly to the interior design dynamics of Australian households, kitchens are also one place where wider social changes that affect families are going to show up in terms both of style and function. Kitchens are one of the most functional rooms in a house, and as families see their needs and requirements change, they begin to seek different kinds of solutions from their kitchens as well.

Future trends

Two of those social changes are the increase in workforce participation by women, and an increase in takeaway food consumption over the past five years -- though the latter varies widely by state and territory.

Chart 1 shows the increase in workforce participation by women, which has accelerated over the past three years. Chart 2 shows the gap in participation rates between men and women (ABS statistics, trend estimates), which came in at an average of 10.5% for FY2017/18 (men 70.8%, women 60.3%), versus 19% for FY1997/98 (men 72.5%, women 53.5%).

Chart 3 is an interesting chart produced by the Reserve Bank of Australia (RBA) which shows the participation rates for men and women in different age ranges. Its two surprises are the increased rate for middle-aged women, and that the participation rate for those under 25 years-old is nearly equal for men and women.

Chart 4 shows percentage change in expenditure on take-away food across Australia. Chart 5 shows the increase for New South Wales (NSW), and Chart 6 shows the increase for Victoria (VIC). Table 1 shows the rankings for per capita expenditure on take-away food for all states and territories. It's no surprise that NSW tops that table, but it is somewhat surprising that VIC is at the bottom.

It's worth noting that according to the 2016 Australian Census, the average Australian woman spends between five and 14 hours a week doing unpaid domestic housework, while men typically do less than five hours a week. Studies indicate that when married, time spent on housework by men declines, while that of women increases. This trend accelerates (on average) after children are added to a family.

This is particularly important as regards kitchens, as women continue to be viewed as "responsible" for the majority of food related tasks, including planning, shopping, preparation, cooking, serving and cleaning up. Families typically have 16 shared meals (a number which excludes weekday lunches). Of those 16, however, the five weekday evening meals carry a larger burden of importance, lack of time for preparation, and a higher stress level. Many families would agree that out of the 100% total effort for food during the week, each of those evening meals account for about 10%. Given this, having take-away food for family dinners six or seven times a month makes a lot of sense.

Just as important is that, globally, the kitchen (and dining-room) is ceasing to be the place where people regularly eat their meals. In a survey conducted by IKEA in 2017, it found that 54% of Berliners and 47% of Londoners do not eat in the kitchen or dining room during weekdays, with a global average of 36% - a trend that is growing in Australia as well.

This range of changes - more women working, more stress related to families getting household tasks done, reliance on outside services (such as take-away food) to solve that stress, and a de-emphasis on the kitchen as a place to eat - will have an impact on kitchens, in particular when it comes to renovation.

One of the first effects is likely to be a slowing down in terms of when kitchen renovations get done. The number of kitchens that are renovated in the range of 16 to 20 years of age will likely increase, while those renovated in the range of 11 to 15 years of age will decline. Figures from the Housing Industry Association (HIA) in Australia broadly support this shift.

In terms of the renovations that do take place, we're likely to see a series of slightly conflicting changes. Kitchens could grow smaller and more compact, consuming less of the overall space of the house. (This will be boosted by the ongoing reduction in overall dwelling size, with even multi-dwelling living spaces growing smaller, as well as the majority of detached housing.)

With changing household interactions, rather than the "kitchen as living-room" we will see the kitchen continue to move towards becoming part of the living area. This means kitchens which provide easy access to the refrigerator and coffee/tea making facilities, but less workspace. There will likely be a move towards smaller in-kitchen eating surfaces, along with the provision of larger eating surfaces (counters and tables) nearby, that can be re-tasked for other household purposes.

While those changes indicate less expensive kitchen renovations and a diminished market, the other big change is going in the other direction. That is the move towards more "technical" kitchens. These are kitchens that will make use of more advanced cooking technologies. For example, the top range oven models released by Miele in August 2017 use a range of combined cooking technologies: electromagnetic waves, radiant heat from the top and bottom of the oven, and a convection fan, to produce better results than conventional-only ovens in a fraction of the time.

One part of that trend will be the "smart-kitchen". In brief, kitchen appliance manufacturers are conflicted about whether they need to fit into the home intelligence systems offered by Google, Amazon and Apple, or if they should develop their own. Developing their own would enable them to promote network lock-in, where you want to buy a Samsung oven to go with your Samsung refrigerator, for example. However, this would preclude other forms of interconnection.

Immediate trends

White to black

White is still dominating kitchen renovations in Australia at the moment, but the good news is that it will very likely change as we move into calendar 2019. Partly as a reaction to white (perhaps), and as a means of better blending kitchens into all the living space, there is a stronger trend towards black kitchens emerging in Australia.

New surface technologies that make matte and textured finishes (in wood and other materials) more durable and easier to maintain are also helping to boost the popularity of black. While black will never be an easy colour to keep looking good, matte finishes do ease the task, as at least every individual fingerprint will not be highlighted against a gleaming reflective surface.

Texture

These new technologies are also seeing an increase in the use of darker and more textured woods used as panelling on basic black kitchens. This is a move away from the somewhat nordic kitchen lines of recent years, and a definite shift in how kitchens can relate to the rest of a house.

Conceal/reveal

One area that remains conflicted is how to present storage space. Along with the shift to black has come designs that hide and conceal the functional parts of the kitchen, such as refrigerators and even cooking surfaces. This has extended to the storage of implements such as pot and pans, as well as pantry supplies.

At the same time, however, many kitchens are innovating with forms of open shelf storage, including suspended open shelves over the work areas.

Birth of the blue

If there is one colour that is coming through the shades of white to influence the design of many kitchens, its is blue. Not a pastel blue, or a blue/grey either, but a deep rich blue. Associated with the blue style, is the use of many different shades of blue, so that, for instance, a rank of cabinet doors will go from dark blue to a lighter blue, and then back again.

The steel

The final trend that is of great interest is a move to make greater use of stainless steel surfaces in kitchens. This is the surface most often used in commercial kitchens, as it is easy to keep clean and sanitary, is highly durable, resists very high temperatures and is relatively difficult to mark. (It does wear over time, but many regard this as a positive attribute.)

If HNN's predictions are correct, and kitchens do evolve to smaller, alcove-like units, open to the home, with a focus on cooking technology that makes life easier, it's easy to see that stainless steel might become more popular.

The kitchen market

Changes from 2017 to 2018

The kitchen trends study from online home ideas website Houzz indicates kitchens for 2018 are not all that different from kitchens for 2017 - with a few important exceptions. The one that stands out the most is that the demand for kitchens priced at over $40,000 has declined, while the mid-range of kitchens, between $10,000 and $35,000, has grown, with an average spend in 2018 of between $15,000 and $20,000.

The other change relates to technology, with fully 12% of renovators adding colour touchscreen displays to their kitchens (with this trending higher, surprisingly, with older renovators). Built-in apps in appliances are used in 8% of kitchens, and wireless controls by 6%.

The areas that have changed only slightly include:

Market size

One pressing question to answer is how the kitchen market will develop in terms of size over the next two years. Tracking this down in terms of statistics has always been a little difficult. One good indicator to begin with are the figures the ABS uses to help calculate the national accounts (from which gross domestic product is derived), the catalogue series 5216.0. These include numbers for alterations and additions, which is the label given to renovations by the ABS.

There seems to be something of a misunderstanding among economists and statisticians who report on these matters as to how these numbers are derived. To quote directly from the ABS guidebook, "Australian System of National Accounts: Concepts, Sources and Methods" published in 2000:15.22

The value of alterations and additions to existing dwellings is estimated using data from regular surveys of building activity, and from the periodic Household Expenditure Survey. The Building Activity Survey provides estimates of the value of work done on alterations and additions with an approval value of $10,000 or more.

As a significant part of alterations and additions activity is not covered in the Building Activity Survey, estimates from the survey are used only as an indicator to move forward benchmark estimates of expenditure on alterations and additions obtained from the Household Expenditure Survey.

Hopefully this will clarify that these ABS numbers do include renovations which cost less than $10,000, as well as those that do not require building permits.

Charts 7 through 15 show the percentage change between the trailing 12 months to March from 2009 to 2018 for each state and territory, as well as the total expenditures. Chart 15 shows the same statistics for Australia as a whole.

One element this last chart shows is a high degree of concentration in terms of outcome for five of the eight states, all indicating a downwards trend in expenditure. The last time there was a similar grouping was in the 2011/12 year, which was followed by a steep drop in expenditure for 2012/13.

These groupings would indicate that there are nationwide forces at work which are independent of the conditions in each state and territory. At the present moment, the most obvious candidate for this is the continuing slow fall in house prices and clearance rates at auctions. These in turn have been caused by two factors. One is increasingly tight credit, as banks move to reduce the number of interest-only loans - though, as the Reserve Bank of Australia (RBA) has noted, the average mortgage rate in August 2018 is lower than that in August 2017. The other factor is the expectation that the RBA is likely to lift interest rates in the first calendar quarter of 2019.

If we were looking for some kind of predictive statistic for kitchens, one that could give some indication, would be the ABS statistic for the number of purchases of owner-occupied established homes for which finance has been provided. This statistic would be linked to both home-owners prepping a house for sale with a kitchen refresh, and purchasers redoing kitchens to suit their own needs.

The Australia-wide changes in those numbers are shown in Chart 14. If these numbers have something of a lag effect, this would indicate that spending on renovations, including kitchens for the remainder of 2018 and the first three quarters of 2019 is likely to be subdued, in a range somewhere between a 0.5% decline and a 1.0% increase.

Kaboodle

Kaboodle has made two strategic changes in association with Bunnings. The first has been the introduction and ongoing success of its kitchen consultancy. This echoes the service long provided by IKEA, and helps to walk customers through the process of designing their kitchens. The second change to service, which is the inclusion of custom-cut cabinetry. The two fit together nicely.

In terms of its marketing, Kaboodle has made some decent TV advertising, and is running this at a higher rotation than its past ads. This campaign seems to be part of a positioning push to make Kaboodle a mainstream choice for kitchens, rather than the kitchen you choose as a compromise.

[Continued]

Download

To read the rest of this article, please download the free, complete edition of HI News at:

The next two to three years could be some of the most transformative for independent hardware retailers since the 1980s. Just as the first point of sale (POS) systems and barcodes changed forever the operational aspects of retail, so now there is an informational change under way.

On the face of it, however, there has seldom been a time when things have looked tougher for non-corporate independents (NCIs) in hardware retail than today. The rise of Metcash's Independent Hardware Group (IHG) has created a division within independent retail itself, and one that is set to get wider over the next couple of years. Wesfarmers is backing a strong push by Bunnings, with the trade sector as its main target. All that adds up to a lot of internal industry stress on the NCIs that are outside of those groups.

Added to this is the more general stress from the current Australian economy that is affecting all of retail. Even as the numbers we currently use to measure the economy are pointing up, the economy itself has been very slow to respond. Business investment remains low, growth in wages is low, and this has been generally reflected in low growth for most sectors of retail. As HNN has suggested in the economics part of this series on the Future of Retail, it's very possible Australia has just barely escaped from entering a deflationary spiral. It is a close call that has come with some costs, and will take the economy some time to fully recover from.

Where hardware retail has been partially shielded from factors that affect retail in general over the five years from FY2011/12 to FY2016/17, buoyed by rising dwelling prices, which have driven the increase home-building and renovation activities, that is set to end, and the market will likely go slightly negative during calendar 2019.

Just to add to all of this, recent changes in retail technology also seem set to advantage larger retail operations over smaller ones. Data analytics, which makes use of broad and deep datasets to deliver market and customer insights which can drive bigger profits and increased customer engagements, requires size, which smaller retailers cannot deliver. Also, though the costs of these techniques have fallen steeply over the past 10 years, they require specialised knowledge, and remain relatively pricey for smaller companies.

The upside

Yet, despite all of these seeming difficulties, HNN remains very optimistic about the prospects for most NCI hardware retailers. It is our belief that both the economy and retail itself are undergoing transitions, and that what emerges will rebalance a part of the market in favour of NCIs.

One key factor in this is that HNN sees the Australian government as being forced into making some kind of economic stimulus spending in FY2019/20. This will follow on from some of the usual pre-election populist stimulus spending, which will likely land in February/March 2019.

Given that small businesses - and especially retail businesses - have tended to miss out on most government stimulus packages, there is a special obligation on the hardware retail industry, and particularly its NCI sector, to present the best possible target for any stimulus spending that might come along.

The key to garnering a deservedly large share of this likely stimulus boost is the combination of a "heartland", high-employing industry (such as retail) with technologies which are at least as much about software as they are about hardware. This can create what we might call a really enticing "three-fer", in terms of representing overlapping business minorities: the type of business the Reserve Bank of Australia (RBA) has identified as being in the highest growth category; a boost to a "traditional" business (as opposed to "scarier" high-tech software development); and a way to deliver funding in a visible, accountable, results-oriented way directly to a large number of small businesses.

Under investment

Of course, making these technological changes is not just about seeking government funding. Few sectors of Australian business have underinvested in the technological opportunities of the past 15 years as much as "traditional", physical retail. It's an area which is ripe for improvement, and where investment is likely to deliver immediate rewards.

This lag in development is a little surprising, as retail in general (and hardware retail in particular) made significant investments and undertook major risks during the 1980s and 1990s as they first adopted barcodes and basic POS cash-register based systems, then switched to complex retail software which, at the upper end, is really a form of enterprise resource planning (ERP).

One big difference is simply that the previous systems that were implemented were very much "replacement" technologies. Just as the spreadsheet was the technology that really encouraged the revolution in personal computing, because it represented simply an electronic form of the familiar ledger, so barcodes and POS systems were a way of doing something familiar faster and better.

The other problem is simply that most of the tech solutions being offered today are the same solutions offered four or five years ago, warmed over to make them look new. Even as part of the tech world (especially anything related to mobile, but cloud computing as well) has accelerated its development, retail technology has pretty much stayed the same.

What is especially lacking is any kind of "architecture" to the solutions, a commonality of purpose and implementation that ties together the many possibilities. However, at the present time that commonality is beginning to emerge, and at its heart is the need and the possibility of moving beyond what has come to be called the "omnichannel" strategy - as the blending of ecommerce and physical retail is often called - to a more unified approach.

The situation

Before we start to look at these new potentials, it is a good idea to get a better idea of the forces that are coming to bear on retailers today. While these are familiar, what is less familiar is how they combine to produce the modern industry.

The most recent industry change has been the combination of Mitre 10 and the Home Timber & Hardware Group (HTH) into the Metcash-owned IHG at the end of 2016. This has created a market that consists - broadly - of three groups: Bunnings, which has majority control over some sectors such as DIY power tools, and a strong influence in many other sectors; IHG, which is using a combination of corporate-owned and independently-owned stores to try to gain control over the "local" hardware market; and stores that are unaffiliated, which we might call the non-corporate independents (NCIs).

IHG has plans to expand both its trade and DIY businesses, primarily by providing unique tools and other products at low price points, driven by higher volumes and the use of its centralised warehouse distribution platform. Even those members of IHG not directly part-owned by Metcash will find benefits in more closely integrating - through data exchange and product lines - with the company's corporate-owned stores. This is turn should, according to the company's strategy, lead to more stores joining IHG, expanding its market reach.

Over the coming three years, Bunnings intends to grow its share of the trade-based market on top of its already high growth rate in DIY. It will do this by expanding the range of services and products aimed at trades, possibly including the introduction of more Bunnings Trade stores across Australia. HNN projects that Bunnings could take as much as $2 billion out of the trade market over the next three years.

As a result of this market consolidation, NCIs stand to come under pressure by the combined forces of Bunnings and Mitre 10 on at least four different fronts.

Retail brand promotions

Both Bunnings and IHG's Mitre 10 brand have the advantage of a strongly identifiable brand name that is backed by a range of advertising, including TV commercials, print ads, regular catalogues, electronic direct marketing (emails), online marketing, and outdoor advertising.

Brand product pricing

Bunnings and IHG pursue a similar strategy based on suppliers lowering their wholesale prices in exchange for guaranteed volumes. Bunnings, of course, has a considerable advantage in this area, both because it has higher volumes, and because it has complete control over its entire store network.

Home and captive brands

Allied with lower brand prices, both Bunnings and IHG continue to expand their offering of home and captive brands. The partnership between Bunnings and Stanley Black & Decker to redevelop the Irwin brand as a captive brand for Bunnings is a good example of this. Irwin is at a near-perfect price/quality/reputation point to aid Bunnings in growing its marketshare for trades.

Meanwhile, IHG continues to produce home-brand items. While these are at the moment, in general, at the lower end of the DIY market with offerings such as its Buy Right brand, there's little doubt that over the coming years these home brands will enter the low-end of the trade market as well.

Merchandising

One of the big changes in recent years has been IHG's revitalising of its Mitre 10 Sapphire store program. While early Sapphire stores were not very good from a customer perspective, more recent efforts have introduced new and innovative merchandising solutions. The Sapphire team now works closely with store owners, is flexible about requirements, and keen to learn and improve how best to equip stores.

The result is not only stores which deliver superior customer experience, but also stores that are clearly similar, making it easier for customers to identify with the brand, and to shop more conveniently at a range of stores.

Bunnings, of course, has long been a quiet master at merchandising. While their stores can seem almost causally laid-out, there is a lot of experimentation and expertise behind what they do. To name just one simple element, the dark-red base colour of their shelving creates a slightly festive and welcoming element to their stores (something that became evident when contrasted the colder blue of the warehouse stores built by Masters Home Improvement).

The drop palettes in the the broad aisles, and the seemingly accidental kick-boxes of helpful products that intrude into product category aisles, are all merchandising fine-tuning techniques that many other retailers have yet to really understand.

Digital transformation

Up until recently, digital has seemed to many Australian retailers to be as much a problem as it is a solution. That is in contrast to the US hardware retail market, where retailers have advanced quite far ahead of the Australian market in terms of digital experimentation and development. The Home Depot stopped building physical stores for a number of years, concentrating instead on building out the technical and logistical infrastructure needed to make online/digital work well for it.

Lowe's Companies has similarly invested in digital, including headline-grabbing store "robots" and virtual reality (VR) active displays. Nonetheless, Lowe's new CEO, Marvin Ellison, who comes from turning around discount clothing retailer JC Penney, after a history as a top executive at Home Depot, is expected to further boost the company's online presence.

Ace Hardware, which relies on independent member stores, has made strong moves into online, most recently through its acquisition of The Grommet. This company operates an e-commerce website that markets and sells new and innovative products created by independent entrepreneurs. Brands it has helped to launch include FitBit, IdeaPaint, OtterBox, SimpliSafe and SodaStream. Ace has taken The Grommet's online presence, and brought that into the physical stores of Ace members.

While it is true that going online is a good strategy in the US (and even the EU) hardware retail sector, it's probably right to be a bit doubtful about duplicating this in Australia. As Wesfarmers so recently found out when it attempted to export the Bunnings business model directly into remodelled UK Homebase stores, Australian hardware retail is something quite unique in the world, and deserves its own strategies.

Download

To read the rest of this article, please download the free, complete edition of HI News at:

One of the puzzles of retail in Australia is that, had Dick Smith Electronics (DSE) managed to survive up until the present day, it would likely be on the cusp of becoming a thriving business again.

As HNN has described in the past, the demise of DSE was largely down to most of its "natural" markets being eroded. After it had left its hobbyist origins behind, DSE's major product lines consisted of: telephones, music players, alarm clocks, laptops and accessories, still and video cameras, ebook readers, GPS navigation systems, calculators, and sundry electrical goods. Just about all of the main nine categories were upended from 2011 onwards by the advent of the popular smartphone.

Customers weren't spending $80 to $300 in each of those categories, they were spending $300 to $700 for a single smartphone that did all those things - often a lot better than the technologies it could replace.

However, dominant technologies such as the smartphone tend to go down an interesting path where, after a period of replacement, they give rise to new markets, or come to affect adjacent markets. Their inability to fully satisfy the demands of these additional markets can then lead to the creation of somewhat derivative but also new products.

For example, the modern zipper was invented in 1913 by Gideon Sundback, and it took until 1948 (and the advent of plastics) for George de Mestral to invent velcro. The two serve quite different purposes - with some overlap - but if the zipper had not established a market for one style of closure, it's unlikely that velcro would have developed in quite the same way.

In the case of the smartphone, one of the markets that it at first influenced, and now has changed dramatically, is home automation. Its influence is very clearly seen in the fact that today we've even moved away from the term "home automation", and have instead begun to refer to the "smarthome".

This new market is one that a retailer such as DSE could have served well. Where the smartphone initially narrowed much of the electronics market down to two categories - the smartphone itself and the accessories that went with it - it is now, via its influence on these overlapping markets, expanding other categories and creating new ones. Drones and smartwatches would be examples of these new categories.

Absent retailers such as DSE, the smarthome business does not really attach itself that easily to other retail categories. Companies such as Officeworks and JB HiFi are making efforts to enter the market, but these are half-hearted, and poorly directed. Bunnings has pointed out this market as one that is of high interest to it, but statements from the company indicate it has not really fully understood it as yet - and, in fact, views the smarthome with a degree of puzzlement.

The missing ingredient from all of these retailers - and something that DSE could have contributed - is providing knowledge and advice to consumers. For that reason alone, it seems likely that smarthome devices and accessories could end up being a good new market for independent hardware retailers, both inside groups such as Metcash's Independent Hardware Group (IHG), and non-corporate independents (NCIs).

Smarthome evolution

Prior to 2014 the vision most of the industry had for home automation involved using hubs. These hubs made use of new wireless communication protocols, mostly WiFi but Bluetooth as well, to hook into the internet, and enable forms of remote control and monitoring that had not been possible prior to 2000. The other half of the hub consisted of an array of legacy wireless communication protocols that pre-dated the internet, but were common to many home automation systems.

A major problem with these systems was how to control them. Early home automation typically gave users the option of either making settings work programatically, or using some kind of switching system, such as physical switches anchored to the wall, or sometimes a remote control. You flicked a switch or pressed a button, and the windows closed, the drapes were drawn, soft lighting came on, and music began to play.

As smartphones gained wider popularity around 2010, home automation began to make small steps to integrate these as a more sophisticated remote control. With hubs enabling internet connection you could, for example, lower or raise the garage door from your office at work, or possibly switch on the airconditioner before you turned into your driveway.

Enter the Echo

In 2014 the global online retailer Amazon launched its Echo device. This was a small cylindrical tower, about 180mm tall and 83mm in diameter, which was dominated by its speaker array. While the speaker system was good, the real magic to the Echo, however, was its array of seven microphones.

This microphone array, backed up by some powerful software, enabled it to "hear" human speech at low volumes and over relatively large distances, even over interfering noise. What it was listening for was its "wake word", which in this case was the name "Alexa" (though it could be easily changed to "Amazon" instead). When the Echo "heard" that wake word, it began listening for commands its online voice recognition system could understand.

Originally, these commands had mostly to do with enabling the speaker system to play music, which could originate from a number of online music services, including Amazon's own Music services. However, it could also answer basic questions that might be asked of it, such as how many grams were in a cup of flour, what the capital of Belarus was, and so forth.

While many reviewers mocked the device initially, it began to gain rapid acceptance by the public in the US. Amazon opened the system to developers, and, surprisingly, a large number of home automation tools began to appear. The device removed the awkwardness of having to find a remote, or pull out a smartphone in order to use home automation. Users could say "Alexa, turn on the living room lights", and it would just happen with surprising reliability.

Even what seemed at first to be small abilities came to assume an important place in households. For example, the original Echo enabled the user to easily set timers, by just saying "Alexa, set a timer for one minute and ten seconds". For a cook with his or her hands full, this was a great aid. It proved so popular that in mid-2017 Amazon added the ability to set named timers, meaning it was easier to keep track of multiple timers.

At home with Google

It didn't take that long for the Alphabet company Google to realise that the Echo posed something of a problem for it. Google seeks to "own" activities such as search as much as possible, and with the increasing success of the Echo, its share of that market could come under threat.

The Google Home was announced by the company in mid-2016, and released at the end of that year, in time for the Christmas market. While very similar to the Echo, the Google Home was somewhat more ambitious at its launch, with more features "baked into" the basic model, where the Echo relied more on third-party suppliers. The Echo was very reliable at what it did, while the Home did more, but would tend to fail more frequently.

Apple's Siri

Siri was arguably the first commonly available voice-based assistant to be made available on smartphones. It was originally launched as an app for the iPhone in 2010, developed by the SRI International Artificial Intelligence Center, which is a non-profit associated with Stanford University in northern California (and arguably home to the core developments for personal computing itself). The technology was rapidly acquired by Apple, and was included as a feature on the iPhone 4S when it was launched in 2011.

The abilities of Siri remain somewhat controversial, with many regarding the system as now being, as compared to the Amazon and Google systems, somewhat underdeveloped. Others see Siri as being a far more ambitious project, that is unfairly judged by comparison to much more limited systems.

What is certain is that not only did Apple not spot the potential of using its voice assistant independently of its smartphones, but also that it has continued to not understand how this market works.

Apple began getting into the smarthome market by introducing HomeKit in 2014. This provided a framework for home automation to work with Apple's mobile operating system, iOS. It was only with the release of iOS 10.0 in 2016, however, that Apple added an actual Home app to its smartphones, providing a single location from which all connected devices could be accessed.

What considerably hampered development of devices that could connect to HomeKit was Apple's insistence that anything that did connect needed to use a specific secure communications chipset. This meant that manufacturers would need to make a version specifically just for HomeKit, outside of versions that worked for Echo and Google Home. Few did so, and those that did typically made these devices very expensive, to compensate for the extra development work involved, and the very narrow market Apple offered.

The result has been, predictably, that there are very few HomeKit devices available - the online Apple store lists around 20, if you can find them after going through four layers of navigation.

In 2018 Apple has finally realised its errors, and, after four years of poor performance, has replaced its previous hardware security requirement with software requirement instead, which should see more devices become HomeKit compatible, hopefully at lower prices.

In general, however, this has been a real failure for the company, going from having a leading position in the field, to not even being considered much of a contender, in just six or seven years.

The future of the smarthome

There are big differences between the way that home automation developed prior to 2014, and the way the smarthome has been developing since then.

Home automation has always required a very high degree of integration for it to work properly. It has mostly relied on that integration through the fundamental controls, such as the actual in-wall powerpoints, light switches, custom security systems, and fixed cameras. These controls have mostly been relatively simple, "dumb" devices.

[Continued]

Download

To read the rest of this article, please download the free, complete edition of HI News at:

Recently, millennials have supplanted baby boomers as the largest generation on the planet. With such a huge number of people, many of who are 20-somethings beginning to get a little spending power, companies are doing everything they can to try and crack the enigma that is the millennial buyer and figure out what they value most (beyond ironic t-shirts, protesting, and coffee shops).

Perhaps unsurprisingly, when it comes to a place to live, what millennials value most is technology. A recent survey from Wakefield Research and lock maker Schlage of 1,000 American renters in multifamily dwellings revealed that 86% of millennial renters would pay higher rent for a "smart" apartment.

For comparison, only 65% of baby boomers would pay more for an apartment packed with automated or remote-controlled devices.

The survey also found that over 61% of millennial renters would rent an place specifically for electronic access features, such as keyless entry doors, and 55% would pay more for an apartment with high-tech door locks compared to traditional door locks.

Another 44% of millennials said they would sacrifice having a parking spot if it meant they could live in a high-tech apartment. Overall, millennials would pay about one-fifth more for smart home features than other generations.

It isn't just technology millennial renters are after, however. Convenience and security are also important. 63% of millennial respondents said they would move out of a flat or apartment because of poor security. Additionally, 64% of millennials feel it is more important for their place to be closer to work than friends and family.

At least according to this survey, the average millennial renter is more concerned with technology and convenience than anything else in an apartment, and are willing to pay for the things they desire.

The Schlage survey was conducted in October 2016 via email and an online survey.

This is a summary version of the article. To read the full article, please download our PDF magazine (which is free) at the following link:

The kitchen renovation industry -- always a little fickle when it comes to style and fashion -- seems set to undergo one of its periodic changes for 2017. HNN has identified a number of trends, many of which are already shaping the kinds of products and the way those products are presented by the major flat-pack suppliers. Some of these trends will also affect the higher-end, semi-custom and fully custom kitchen design and installation industry as well.

One trend which has become evident at the end of 2016, is that the slow shift from the pre-Christmas kitchen to the pre-Winter kitchen has taken a move forward. While this shift has been underway for the past two or three years, it seems to have accelerated in Spring 2016. One possible reason for this is that there has been an increase in spending on outdoor living renovations.

The outdoor room -- which proved so popular five years ago, but declined due to the high level of maintenance required -- has met up with a strong trend to building decks, and produced a new version of the outdoor room. Built on the deck, this new outdoor room offers a new extension for outside entertaining, and is relatively easy to maintain. It is also rapidly developing more "outdoor kitchen" features, becoming almost a summer kitchen, especially for households in the warmer climes outside of southern Victoria and Tasmania. It is likely that establishing a "second kitchen" outside is reducing the spend on the standard kitchen inside.

One area where this slow-down has been sharply felt is in sales of magazine advertising to the two main flat-pack competitors, the Bunnings-exclusive brand Kaboodle and IKEA. There have been almost no IKEA kitchen ads in Spring home decorating editions of magazines, and Kaboodle has also reduced its spending, outside of one particular magazine.

In the notch above flat-pack, the semi-custom kitchen market, changes also seem likely in the near future. The Good Guys pulled out of their major promotional activity, sponsoring the kitchens on Channel Nine's reality/renovation show "The Block", and they don't seem to have replaced this with increased promotional spend elsewhere. The Good Guys' place on "The Block" was taken by the other main semi-custom kitchen company, Freedom Kitchens. Freedom carried off that sponsorship with real flair and demonstrated ability.

As The Good Guys has been recently acquired by JB Hi-Fi, it does seem possible that its kitchen business will be spun out during 2017, as it doesn't sit well with JB Hi-Fi's main electronics and appliances business. Should that happen, the most likely buyer would be Freedom Kitchens.

An alternative to this would see Metcash acquiring the kitchen business of The Good Guys, and incorporating this as one of the elements of its Mitre 10 Sapphire stores. That's unlikely, as Metcash has enough integration concerns at the moment without adding a service business to the mix. However, one strong possibility for Metcash is that it will spin out and IPO the hardware business in the first calendar half of 2019, and an asset such as a kitchen fitting service could help to make Mitre 10 more attractive as an independent company.

The actual health of the core kitchen business at Mitre 10 is something HNN has not been able to determine, as Metcash has not responded to requests for information. It seems very likely -- and a little ironic -- that the kitchen business of Metcash's recent acquisition, the Home Timber & Hardware Group (HTH), is going through some tough times this Spring. HTH sells the same Principal Kitchen range as has been sold in Masters, with some stores, such as Hume & Iser in Bendigo, making it a major feature of their business. There have been some discounts on this range throughout Masters' liquidation sale, but in November 2016 these discounts increased substantially, to over 50% in some areas.

Numbers

In terms of kitchen installations in new homes, the Housing Industry Association (HIA) is predicting this will slow considerably during 2016/17 and 2017/18, before picking up again in 2018/19. The slowdown is predicted based on a reduced number of dwellings being built.

Kitchen renovations -- as contrasted with new builds -- are expected to continue at around the same number for 2015/16 into 2016/17. The HIA pegs the "pool" of available renovations at 145,600 for 2015/16, and sees this increasing by less than 1% for 2016/17.

Shane Garrett, a senior economist with the HIA, has indicated there are three main reasons why kitchen renovations will continue at a steady rate. While the HIA does see renovation budgets in general shrinking somewhat, even as more people turn to renovating, kitchens represent good value for money, and are lower in cost than major renovations such as extensions or structural alterations.

Mr Garrett also points to the high levels of building in the early 2000s. With most kitchen renovations taking place in kitchens around 15 years old or so, this has helped to feed the pool of available work. Finally, he notes that there was been a sharp shift in fashion for kitchens, with the utilitarian looks of 10 or 15 years ago replaced by kitchens that match the rest of a house aesthetically.

In 2014/15 the HIA estimates the average value of a renovated kitchen was $21,862, up from $19,036 for 2013/14. A survey conducted by the home design website Houzz during 2016 on renovations conducted during 2015 indicates that the average cost of a full renovation on a large kitchen was $31,000, while for a kitchen under 12 square metres it was $21,840. A minor renovation on a large kitchen averaged at $16,120, while for a kitchen under 12 square metres it was $11,570. The average size of a renovated kitchen was 14 square metres. Some 76% of all kitchen renovations involved replacing benchtops, according to this survey.

Trends

In addition to the trend of much of the kitchen renovation business under $60,000 shifting from the Spring to Autumn season, there are a number of other shifts taking place in the kitchen renovation market. HNN has identified six key ones.

Appliance upgrades

While the number of ads for kitchen suppliers reduced sharply in the pages of home design magazines, the ads for very high end kitchen appliances, especially ovens, increased sharply. Smeg and the Italian brand Ilve were particularly noticeable. Harvey Norman also ran a number of ad sequences that featured black and white images of high-end kitchen appliances.

This seems to match up with industry reports that one version of a kitchen "fix up" instead of a complete renovation is to buy higher-end appliances for an existing kitchen. Instead of spending $30,000 or more, home-owners spend $12,000 to $15,000 on appliances with advanced technology, and perhaps replace kitchen benchtops as well.

Style over reference

During 2014 and 2015 there was a push for kitchens which offered a very particular design approach, such as industrial, rustic, or cafe. In 2016 there is a move away from those complete systems of design to more freeform styles, where colour, for example, plays a much greater role. This echoes a trend that has been developing in the US, where many homeowners approach kitchen design with a primary colour -- white, blue, green, black -- as its central theme.

Adaptation over cost

Where cost has played a central role in the past when it came to choosing a kitchen, consumers are now willing to pay a little bit more for kitchens which offer a higher degree of adaptability. While the finite life of a kitchen might remain 15 years, they expect that they will update the kitchen once or twice over that period, to keep up with changing fashions. Cabinets that can be easily repainted a different colour, with hardware that can easily be swapped out have gained in popularity.

Apartment style

In the past many people moved from their parents' house to a share house during university/apprenticeship, then bought their own house. Today, it is more likely that there will be a period of five to 10 years (or more) when they will live in a multi-dwelling building of some sort. They have grown used to much smaller kitchens, and while they might want something a little bigger, they feel a little uncomfortable in kitchens that are too big. This is especially noticeable for kitchens in smaller houses. Where these homeowners would once make big kitchens to make the house "feel bigger", that's less likely today.

The Not So Serious Kitchen

Not that long ago, it seemed that everybody who had anything to do with a kitchen almost had to be, compulsorily, a gourmet chef. Recently, homeowners have come to terms with the fact that many of them might be fair at putting a decent meal together, but they don't see a great future in flambe.

Hence the origins of the Not So Serious Kitchen (NSSK). It's no longer mandatory to concentrate on how much "prep space" you have on the benches when, frankly, the most used kitchen appliances will be the microwave oven and the grill.

This means many homeowners are seeking to downscale the kitchen, reducing it both in size, and in its presence in the house.

The living room is the new kitchen

Over two years ago, HNN and a number of other sources suggested that there was a move in Australian households to make the kitchen the new living room. Today, we're seeing a further evolution of that trend, where the living room is functioning as part of the kitchen. Where these two room were, in the past, kept clearly separate, designs now feature kitchens opening directly into the living room in open plan houses.

Advertising

It is true that 2015 was an unusual year for kitchen advertising. IKEA was boosting its new kitchen system, METOD, after its release in May of that year, with a heavy cycle of magazine advertising in September and October. Just about every home design magazine featured at least a five-page foldout on the new kitchen, and some had considerably more ads. Kaboodle, motivated not only by the IKEA move, but also by its involvement with in Bunnings' resistance to the Masters venture, responded with a heavy advertising blitz as well.

IKEA Spring 2016

In 2016, the kitchen advertising spend could be optimistically described as "subdued". HNN could only discover one single ad for IKEA kitchens, and that was in a quarterly publication, and so likely had more to do with February/March 2017 than the current season. There were some IKEA ads in other magazines, but these were devoted to IKEA's Indian-inspired SVARTEN range of interior design furnishings. Not even an editorial which featured a METOD kitchen in Better Homes & Gardens September 2016 edition could seemingly convince IKEA to advertise.

One possibility with IKEA is that this slowdown in advertising is partially a result of the company's change in its media buying contracts. After a review that began in April 2016, and went through to July 2016, IKEA determined that media buying and planning would be handled worldwide by either Group M or Dentsu Aegis.

It's not clear currently which media buying group IKEA Australia chose to go with, though most commentators expect it would be an agency in the Group M business. (Media buying/planning relates only to purchasing ads. IKEA's creative work in Australia seems to be mostly handled by leading ad agency The Monkeys. IKEA appointed Pulse Communications, part of Ogilvy PR Australia, as its public relations agency of record in April 2016.)

Another possibility is that IKEA is gearing up for general online sales starting in early 2017, with a switch to more spending on online advertising. The company has recently launched an online store that services only Tasmania. It runs online stores in other countries around the world, including the US.

However, HNN is fairly certain that the lack of IKEA ads in Spring 2016 is down more to internal logistics than strategy. One factor that points clearly in that direction is that, with the publication of the December issues of home design magazines, IKEA's kitchen ads have made a mild comeback. It makes very little sense to choose December as the month to promote kitchens over September and October. That late in the year those families that intend to install a new kitchen before Christmas are well down the planning and renovating path.

Outside print advertising, IKEA globally has begun to adopt a very interesting approach in its online ads. Its main theme in recent times has been "Let's Relax". The company has put together a very clever ad on this theme which illustrates exactly how silly today's online-obsessed world has become. An aristocratic family in what looks like the Louis XIV period sit down to eat a meal -- but wait, they can't touch it until a painter has rendered it on a canvas. Which is then transported around the country via couriers for a number of groups to view, who give it a thumbs up or a thumbs down. Only when those results are tallied and reported back to the family can they eat the meal.

In parallel with this effort, IKEA has run a series of short videos which it calls "Kitchen Confessions". In each of these people from a range of ethnic backgrounds confess to a range of "kitchen sins". "I served take-away food," one woman confesses, "and pretended it was home-made." "I never use a timer," is the blunt statement of a another man. "I ate from disposable plates," a woman says, "for a month".

Other confessions are far more serious, even grave. "I never understood," a man says, "the oven symbols". "I never wash lettuce". And, finally: "I can't cook".

The video closes on the message: "Relax. Nobody's perfect".

What is definitely getting picked up here is the NSSK theme described above. IKEA has likely identified that one factor preventing people from buying its kitchens is the sense that they need to be enthusiasts -- dedicated chefs, stylists extraordinaire, appliance savants -- in order to design and order a kitchen. In truth, lots of people simply need a kitchen, and it's not such a big deal. It needs to be an adequate kitchen, but they don't expect it to "transform the living space" or suddenly make their family life richer and more meaningful. It's a kitchen. You cook stuff there. That's OK.

Kaboodle Spring 2016

Kaboodle had more of an advertising presence during the season, especially in the Bunnings-supplier perennial favourite, Better Homes & Gardens, as well as Real Living. The big exception for Kaboodle, however, was the September 2016 issue of Australian Home Beautiful (AHB), which had a saturated ad buy. There are seven pages of advertising, which meant that Kaboodle "owned" that issue's "kitchen special" feature. While Kaboodle has rightly targeted this magazine for some time as representing a good market for its products, it is also possible that, with IKEA pulling out, some of those ad pages were sold at discount, "distressed" rates.

Better Homes & Gardens, as is usual with Bunnings suppliers, gave Kaboodle a heavy editorial presence, featuring in particular its "paint it yourself" cabinet doors, and had one full page and one double-page spread ad. Real Living also featured the "paint it yourself" cabinet doors (though in a much more creative way than BH&G) in two separate editorials, and scored a double-page spread ad. These are very much "standard" ads for Kaboodle, similar to those it has been running over the past two years or so. The editorial design feature was backed up by another editorial feature, providing DIY instructions for painting the Kaboodle cabinets.

The real Kaboodle story was unveiled in AHB. This featured what appear to be two new style ads from Kaboodle, though at a guess this isn't the finished campaign that will be seen in Autumn 2017. Kaboodle has tied these ads together with a theme it calls the "seven builds" in the first ad of the series. The seven builds are:

The two new ads would seem to be "built to cook" and "built to colour". The first shows a crisp white kitchen with an island bench, and the second shows four cabinets along a wall, each painted a different shade of blue, promoting the "paint it yourself" range. One factor that Kaboodle hasn't got quite right in particularly the second ad is the height of the camera.

In the darker ads the company has featured recently, the camera height is just slightly above the bench height, which tends to highlight the benchtops, and give the ads a planar feel. This camera position doesn't work quite as well when the main subject is brightly painted cabinets. Most kitchen photography highlighting cabinets uses a camera height that is lower, usually 50cm to 65cm from the floor.

>http://hnn.bz/kaboodle-colour-ad.jpg}A new style of ad from Kaboodle?}http://hnn.bz/kaboodle-colour-ad.jpg

It is difficult to know to what extent these ads play a clear role in Kaboodle's future strategy, and to what extent they are a somewhat make-do response to a good advertising opportunity. At a guess, it is likely to be a bit of both, and the two new ads may signal a change in Kaboodle's advertising strategy for 2017.

If that's true, then the company will be answering the trends of style over reference and flexibility. Cabinets that have been painted one colour can fairly easily be painted a new colour in another five or six years. In terms of pure advertising, the addition of brightness and colour in the Kaboodle ads would be welcomed by many.

Analysis

There are two trends that likely deserve a good amount of attention going into 2017, one of which has been mentioned above, and one which has not. The one that has not been mentioned is a deep underlying trend in retail, that's actually been around in some form for the past decade, but which is beginning to bite a little deep now. That trend is all about the ongoing decrease in the influence brands have on consumers.

It could be said that as we move into 2017 the entire notion of what a brand really is has become more a question than an answer. One reason for this -- though it does not have a big direct effect on either IKEA or Kaboodle -- is that the influence of standard television programming itself is decreasing. The top 50 years for brands, from about 1956 through to 2006, coincided with the top years for television. TV, in fact, has been every advertiser's dream medium, just a fantastic way for them to get their message delivered.

Today TV is being steadily replaced by online alternatives. The simple truth behind this is that online video viewing is likely not even half as effective as TV has been for advertising. Many online viewers dislike advertising so much that enough ads by one particular brand actually turn them off that brand. So advertisers face a steady migration of audiences away from a medium which is good for advertising to one which isn't. That has to mean that, in the main, we face a future where advertising will simply not be as effective in producing sales as it has been in the past.

There are other influences that are leading to the decline of the brand as well. One way of getting to what those influences are is to ask the question: "What has replaced the brand?" The simple answer to that question is: innovation. One of the strongest brands the world has ever seen is Apple, the California, USA-based maker of smartphones and computers. Yet as successful and big as it has grown, people still speak of it as though it is perpetually on the edge of some kind of failure. That is because, as it sits out there on the edge of innovation, it is only ever as good as the most recent product it has launched.

An even better example of how innovation has replaced brand can be seen in the car industry. Small car makers have come and gone over the past three or four decades, and often end up being only really known (and remembered) by car aficionados. In Australia, names such as Bolwell are a mystery to all but a few. And there have been dozen of others: Puma in Brazil, De Tomaso in Italy, for example. Even currently operating manufacturers such as Proton in Malaysia are little known.

But everybody knows what a Tesla is. That's not because of advertising, or publicity stunts. It's because Tesla products are directly and evidently highly innovative and highly effective. Drive a Tesla alongside a great car such as BMW's i7 sports hybrid, and it becomes immediately evident that the BMW is a very good car, but it's really a repackaging of the past. The Tesla is a direct line drawn to the future. Despite BMW's decades of great cars and good advertising, the innovation in Tesla is able to overshadow it.

Both Kaboodle and IKEA have been quite innovative in recent years. IKEA launched its new kitchen system, METOD, in 2015, and it has been a success. Kaboodle managed to evolve its brand from what many saw as a cheaper alternative to a "real" kitchen, to something that meant average homeowners without too much to spend could get the style and features of much more expensive kitchens.

Innovation, however, is something that never stops. Where in pure branding companies can take a year or even two years off from major developments, innovation is constant. So the question needs to be asked: how and where should flat-pack and standard kitchen makers think of innovating in the future?

One way to get to an answer is to run the thought experiment of imagining where a startup kitchen company would innovate today in entering this market. There would be at least two entry points.

The first is to reconsider the "pod" kitchen. This idea of the do-everything pod that is prefabricated and dropped into a kitchen space has been popular in Europe for decades, but not really found a receptive audience in Australia just yet. However, if the trends HNN predicts do take hold, especially the acceptance of more apartment-based styling and the rise of the NSSK, pods may become an acceptable, cost effective alternative for many Australian homeowners.

The second -- which is a real challenge -- is to develop the $12,000 kitchen. How much kitchen -- complete with appliances and installation -- could really be delivered for $12,000? This thought experiment opens up a number of areas for investigation, such as considering materials, new sources of manufacturing, and exactly how DIY a kitchen can be made. Today's flat-pack kitchens can be self-assembled, but this requires a fair amount of skill. Can this be made simpler, easier, cheaper?

Appliances

The second key trend, which has been mentioned above, is the shift evident during this Spring 2016 season towards buying better appliances rather than doing a complete kitchen upgrade. At the moment this trend is only affecting the higher-end of the kitchen purchasing spectrum, but it is likely to start affecting the middle of the market by the Autumn 2018 season. Developments such as steam ovens will likely begin to become more commonplace by then.

Again, this is largely driven by innovation. Appliances are getting smarter, and we are likely on the edge of seeing them fully integrate into intelligent home management systems designed by companies such as Amazon and Alphabet (Google). Instead of playing with knobs and dials, it will be possible to say "Set the oven temperature for 300 degrees, and the timer for six-thirty".

This change will bring a new balance to parts of the kitchen renovation market. IKEA, for example, is well-positioned to take advantage of such a change. Replacing kitchen renovation with new appliance purchases will work well for the company as it is fully vertically integrated into kitchens. IKEA is no doubt developing its own high-end range of kitchen appliances, and these will likely launch before 2019.

For other suppliers, such as Kaboodle and Bunnings, it is probably not such a positive development. While Bunnings is making more of a move into appliances, it's a difficult market to enter against strong and persistent competition.

Other developments

The other major change in kitchens which is likely two years off from widespread development is the use of virtual reality (VR) technology to showcase kitchens to potential customers. While some advances have been made in various "3D" kitchen design systems, most of them remain awkward to use. Fully developed VR will enable customers to "enter" a possible kitchen and "walk around" in that kitchen. It could be a winning sales tool that really closes the deal for some suppliers.

Conclusions

In the longer term, the problems that continue to hold back the overall kitchen renovation industry from reaching its full potential are much the same problems that hold back over 50% of renovation activities. Where construction has made some progress in becoming a more efficient (and a much safer) industry over the past 20 years, progress in the renovation sector has all but stalled.

The simple fact is that if renovations could be made less expensive and much simpler to organise, there would be a sharp increase in renovation numbers. To do that means a transition from a smaller number of renovation jobs at a relatively high price, to a much higher number of renovation jobs at a lower price.

It's a difficult transition to make. In the end, it's likely we will have to rely on the suppliers -- and retailers to drive the suppliers -- to bring in the needed changes to the industry. In the mean time, HNN believes the renovation industry, in spite of its recent growth, is perhaps 20% below its true potential, in earnings, not revenue terms.

Lowe's is stocking The Restorer, a new tool under the Porter Cable brand; the Lowe's Vision App allows users to envision their home improvement projects using augmented reality; and True Value reports its third quarter performance.

Power tool invention at Lowe's

When Robert Kundel Jr. couldn't find the right tool to remove rust from the surfaces of the metal products his family's company works with every day, he made one with the help of fellow employee Richard Schley. Mr Schley previously worked as a tool and die employee at Delphi Packard Electric.

Seven years later, Kundel's invention, The Restorer, can be purchased at Lowe's across the US and next year is expected to go on sale in New Zealand, Australia, Latin America and Europe. Mr Kundel told the Tribune Chronicle:

I don't consider myself an inventor. I'm a solutions guy. But because I work here and we needed a solution to get something done, I ended up creating a tool for our business. Now it's available to others who need it.

He began working for his father's business, Kundel Industries, an Ohio-based manufacturer of trench shoring products, when he was 16. Eventually, he moved into the role of chief operating officer at Kundel Cranes, a division of Kundel Industries.

One of the company's biggest expenses involved prepping surfaces before welding or painting them. Typically, Mr Kundel explained, it used an angle grinder to remove rust and paint, but that left jagged marks. He said the prototype he created, albeit crude, worked so well to restore surfaces that he decided to patent and market it.

Mr Kundel showed his prototype to a tool company, which made him an offer that he declined because, he said, it didn't "seem right at the time". He bounced around among several companies the next few years before signing a deal with Stanley Black & Decker that would launch his invention into 1,671 stores.

He enlisted assistance from Matt Gennari of Maryland-based Gennari Consulting to get the product produced. Mr Gennari, who worked for Black & Decker 20 years, is vice general manager of US operations for Jinding, a Chinese manufacturer that produces the power tool for Wellington Corp.

Mr Gennari said the invention is a crossover tool that replaces three devices, two of which can actually be dangerous to use.

He's created a product that replaces 85% of the applications in those three tools with a very safe, ergonomically designed tool. The physics of the tool, and how it works are what's truly revolutionary about it.

The tool, which uses a wheel that is actually an expansive roller, allows the user to remove a lot of material rapidly, without generating the large amount of heat other tools create.

Approximately 13,384 units have been shipped to Lowe's. The tool has become available under the Porter Cable brand, a subsidiary of Black & Decker.

Mr Kundel started a new company, Wellington Corp., to contract, manufacture and distribute the hand-held power tool that can be used to polish, buff, sand, scrub or clean surfaces by using interchangeable accessories such as a buffing wheel or polishing roller. It can also be connected to a vacuum, and Mr Kundel said he plans to add other features including scrubbing brushes for the multi-purpose device that "takes the elbow grease" out of the job.

He has entered into a reverse licensing agreement with Stanley Black & Decker, meaning Wellington pays Black & Decker a royalty to use its name.

Lowe's augmented reality in aisle 3

Lowe's is giving home improvement customers a new way to see their homes through Lowe's Vision, one of the first apps using Tango, a Google technology that enables computer vision software on a phone for augmented reality experiences. Using the app and the Lenovo Phab 2 Pro, the first Tango-enabled smartphone, customers can envisage virtual home furnishings, fixtures and accents in their real living rooms, kitchens and bathrooms. Kyle Nel, executive director of Lowe's Innovation Labs said:

Lowe's Vision and Tango bring our customers one step closer toward eliminating the challenge of visualising a completed home improvement project. Tango transforms the smartphone into a digital power tool that helps customers measure and style spaces in their home with confidence.

By leveraging Tango technology, a set of sensors and computer vision software from Google that senses and maps surroundings, Lowe's Vision creates a 3D depth sense allowing customers to measure spaces and envision how products like appliances and home decor will look and fit together in a room.

Lowe's Vision features at launch include the following:

Power Measure

Quickly and intuitively capture room dimensions and other interior space and surface measurements with a powerful digital tape measure.

3D Designer

Select any item from Lowe's virtual library and place it in the home in real-time to style and preview indoor spaces.

Save, snap & share

After designing the perfect space, save the project and share photos online.

Shopping lists and reviews

Create a shareable shopping list and save to a myLowe's account. Find additional product information like reviews, related items and promotions.

The Lenovo Phab 2 Pro will be available in December. Lowe's Vision is a free download in the Google Play Store.

Related:

True Value posts more gains

US-based retail hardware cooperative True Value Co. has achieved a comparable store sales increase of 1.5% in the third quarter. It reported growth in six of the cooperative's nine product categories, led by farm, ranch, auto, pet, lawn and garden and paint.

Revenue was USD1.16 billion, up 0.7% or USD7.7 million, compared to last year. Gross billings were USD1.59 billion for year to date ending Oct. 1, 2016, up 1.6% or USD25.6 million. On a gross billings basis, wholesale comparable store sales were flat versus the year-earlier nine-month period, the company said.

The retail co-op posted net margin of USD20.5 million, up 88.6% from a year ago, driven primarily by continued efficiencies in lower inventory provision and adjustments, advertising costs and freight-in expenses. President and CEO, John Hartmann said:

Despite a soft retail environment, True Value members continue to see the benefits of our strategic plan unfold as they grow their business and engage their markets. Our continued strong growth in net margin shows that we are making clear and steady progress.

True Value also expanded its square footage and retailer base. In the nine-month period, the company added nearly 1,120,000 square feet of retail space, furthering its commitment to grow Destination True Value (DTV) and other relevant formats in its network. DTV comparable store sales were up 2.5% year to date.

There are more than 4,400 True Value locations around the world.

Builders' merchant Travis Perkins issues profits warning; advanced click-and-collect services from B&Q and Wickes; and Laura Ashley exits Homebase stores.

Store closures at Travis Perkins

The Guardian reports the uncertain economic environment in the UK after the vote to leave the EU has led to Travis Perkins, the builders' merchant and owner of the Wickes chain, revealing plans to close more than 30 branches, putting 600 jobs at risk.

Travis Perkins will close 10 distribution and fabrication centres as well as the 30 branches and is reviewing the future of its plumbing and heating business, which dropped 3.9% in year-on-year sales in the third quarter of 2016.

The closures will be across the company's trade brands, which include Travis Perkins, Benchmarx, its kitchen and joinery arm, and BSS and PTS, its plumbing and heating businesses.

Travis Perkins, which employs 28,000 people and has 2,060 stores, said it hoped to relocate some of the affected staff to other locations.

Chief executive John Carter said the company was making the cuts because "levels of future demand remain difficult to predict". Mr Carter blamed the uncertainty on Brexit and an increase in stamp duty on second home purchases. He said:

It [Brexit] is a big part of the uncertainty. If we were stood here now without Brexit I think it would have been easier to predict 2017. The government took the decision to change the tax status of buy-to-let and we had a massive spike in housing transactions in March [before the new regulations started]. That is still unwinding to get to a consistent level.

There would have been some uncertainty about 2017 just based on the housing transactions, but clearly it is a big uncertainty because we don't know how Brexit is going to work.

Mr Carter said he expects the market next year to be "soft". He warned:

We are working on the basis that it is going to be soft, but we don't know how soft. None of us have experienced this before and really it comes down to the consumer -- disposable income and consumer confidence.

Travis Perkins warned it would take a GBP40 million to GBP50 million (AUD66.3 million to AUD82.8 million) hit from the restructuring in 2016, although two-thirds of that will be the writedown of the value of its assets and not involve a cash loss.

Although Travis Perkins enjoyed a 3.4% increase in group sales during the third quarter and a 2% rise in like-for-like sales, which was driven by a 9% rise in sales to consumers, the plumbing and heating business contracted sharply.

Mr Carter said the plumbing and heating business was "structurally challenged" as homeowners turn to online alternatives for repairs and installation or defer major purchases. Asked if the company would consider selling the business, he added:

If we could, I think we would. The sector is not attractive to investors, so it is our job to fix it.

Travis Perkins is halfway through a five-year overhaul of the group, in which it is shutting unprofitable stores and expanding in better-performing areas. It is revamping its Wickes stores and said it has refitted 50 shops.

B&Q offers click-and-collect in an hour

UK home improvement retailer B&Q is introducing a one-hour click-and-collect service. It also announced plans to roll out its new format store -- introduced at Cribbs Causeway in Bristol -- across 10 stores.

Speaking at Retail Week's Interior Summit, B&Q chief executive Michael Loeve said it would launch up to 10 similar stores by the end of March. He said the company is trialling it in different catchment areas to see how shoppers react, adding that he was keen to get to the stage where the profit on store refurbishments would be strong enough to justify a full implementation.

Mr Loeve admitted that B&Q had "lost focus" in terms of its stores' designs with some starting to look "fairly functional" and "a little bit tired". The latest store concept aims to improve this with brighter and more visual displays, and better in-store navigation as well as shop-in-shops.

And, despite the continuation of B&Q's plans to close 65 stores across its portfolio, Mr Loeve revealed plans to open more stores, particularly in and around London.

B&Q is also planning to launch a one-hour click-and-collect service next year, enabled by the introduction of a unified IT system across parent company, Kingfisher. There were hints the system would deliver more innovation, with the promise of "digital services not seen in the market before".

Related:

Wickes' DIY deliveries

Home improvement retailer Wickes has launched "Wickes Hourly", a delivery service that provides customers with a choice of one-hour time slots for their product deliveries. The service is made possible through a partnership with delivery technology brand, On the dot, following a successful trial.

Introduced across the UK, hourly delivery is designed to make home improvement shopping quicker and easier. Whether it is power tool failure or running out of a product mid-job, this service offer enables customers to chose ultra-convenient delivery.

There are over 7,000 products available through Wickes Hourly and orders can be made online or through the customer services team. Precise one-hour windows are available seven days a week and same day, from GBP9.95 (AUD16.50).

Developed in 2015, On the dot is operated by CitySprint -- the largest privately owned courier fleet in the UK with a regional network of 41 service centres - and supported by its GPS, SMS and email tracking technology. Its open API (application programming interface) means it can be easily integrated into retailers' checkouts and ePOS, both online and in-store.

Laura Ashley dropped at Homebase

Wesfarmers has axed 22 Laura Ashley concessions that were operating as part of its UK-based Homebase stores that will be converted to Bunnings outlets.

Laura Ashley is a listed homewares and fashion group and revealed to investors that it would remove its concession stores within Homebase by the second quarter of next year. It sold paints, wallpaper, home furnishings and other housewares through Homebase.

In January, Laura Ashley's Australian business was placed in administration, with the local and New Zealand businesses run under a licence agreement with Laura Ashley UK.

At the Wesfarmers investor day in mid-June, Bunnings chief executive John Gillam confirmed the removal of all concessions from Homebase stores was proceeding to plan.

Despite the delay in millennial homeownership, HGTV, home to renovation fans and savvy house flippers, is increasingly the destination of young audiences. The US-based cable channel reports that it drew more than 4.5 million weekly viewers age 21-34 in the last quarter - 16% more than last year. Many of its TV shown are shown on Channel Nine's digital channel, Life.

Two of the most popular HGTV series among millennials are "Fixer Upper," starring Chip and Joanna Gaines, and "Flip or Flop," starring Tarek and Christina El Moussa. While homeownership plays a role in both series, the Gaineses and the El Moussas - two cheery couples - consistently take on low-cost projects, such as installing a backsplash or building furniture, which could be useful to renters as well.

According to HGTV general manager Allison Page, home makeover series appeal to both genders, whereas the design-based series more prominent in the past had relatively low levels of male viewership. Coupled with the DIY element, this wider appeal could contribute to the increase in younger fans. Ms Page said:

With shows like 'Fixer Upper,' 'Flip or Flop,' or 'Property Brothers,' there is design all over it and all through it, but there is more at stake because it's a full-house renovation. That level of drama and high stakes paired with design is what brings in the biggest audience, including millennials.

If drama bolsters the channel's success with younger audiences, it is no new phenomenon. Competition series have long thrived, from "The Voice" to Food Network's "Chopped."

Just as millennials love to put themselves into the shoes of the homeowners on screen, watching competition shows allows viewers to pick up on tips - and root for certain competitors. Miranda Banks, an associate professor of visual and media arts at Emerson College (in Boston, USA) said:

Everyone likes things done quickly, and then they think it might be possible for them to do it too. Having people play with speed and something cheap plays into an activity that could be done by a millennial if they have a weekend and only so much money. Can you build your dream home?

Ms Page also credits much of HGTV's millennial viewership to the evergreen quality of the channel's content. Many viewers lead busy lives, and being able to turn on the television without needing to have seen the previous episode is appealing.

A new study indicates that parents are moving into backyard bungalows and allowing their married children and grandchildren to live in the larger, main house.

Increasingly expensive housing and parents wanting their children to be nearby rather than living far away in estates on the suburban outskirts are some of the factors contributing to the growing trend in backyard flats.

Nearly four in 10 property owners are thinking about building a backyard flat (also known as man caves, she-sheds, teen retreats and granny flats), based on a survey by Gateway Credit Union, which offers loans to build them.

Sonia Woolley is a director of Vision Property Group that builds the flats. She told Fairfax Media: "It is booming."

Parents and children switching from the main house to a flat is also becoming increasingly popular, adds Woolley, even as a short-term solution to the problem of saving a bigger deposit.

Woolley says about 25% of her clients are families planning for the parents to move into the backyard flat and letting their children and grandchildren move into the family home.

Three in 10 families build a flat for additional recreational space, a home office or as accommodation for other family members, according to the Gateway survey.

An analysis of recent government policy statements shows that state governments and councils are relaxing regulations about building backyard apartments in a bid to boost housing supply, lower costs and slow urban sprawl.

But the nation's laws are a confusing mix of overlapping state and council regulations, bylaws, permits, restricted usage controls, size, height and noise restrictions.

For example, the regulations are controlled by state authorities in Western Australia and NSW. This compares to Queensland and Victoria where the rules vary between councils.

Daren McDonald, a director of ShineWing Australia, which advises on property development, said:

Some planning schemes prescribe one dwelling per lot and designate a specific purpose, such as a granny flat.

That means the flats cannot be rented and have to be demolished when the property is sold.

Builders are also encouraging homeowners to rent out the flats, providing an alternative source of income, negative gearing benefits and the possibility of capital growth.

However the increased supply of apartments, particularly in east coast central business districts, will increase competition for tenants and could drive down rents.

Backyard apartments cannot be put on a separate title, which means the cost is added to the price of the property and they cannot be sold separately, according to building specialists.

In postcodes where property prices are falling there is a danger that the cost of adding an apartment may not be reflected in higher overall value for the property.

There is also the loss of amenity, such as privacy, when renting out a backyard, particularly for children who might otherwise use the space for playing.

The building site of the future could look very different to the one we are all used to today. Instead of people in high-visibility jackets and hard hats, there are going to be drones buzzing overhead, robotic bulldozers and 3D printers churning out new structures.

That at least is the hope of those making technological solutions. But first they have to convince the traditionally risk-averse construction industry that such change is necessary.

US startup Skycatch is using drones on some high-profile building projects -- although it cannot name them because of commercial sensitivity. The drones give a bird's-eye view of a site and provide progress reports, speed up the logistics of construction by monitoring deliveries and offer real-time updates on any changes that may need to be made to the plans.

Japanese construction machinery giant Komatsu has gone one step further -- using the Skycatch drones to provide the eyes for automated bulldozers. The drones send 3D models of a building site to a computer, which then feeds the information to unmanned machinery to plot their course.

Skycatch's chief executive Christian Sanz thinks such combinations of technology could kickstart a robotic building site. He said:

The more visible data that you have on a site, the more you'll see machines and robots moving things around rather than humans.

3D housing

One of the potential solutions to housing problems could be 3D printing, which is already making an impact on the construction industry. It can cut both the time and cost of building houses.

The United Nations estimates that by 2030 approximately three billion people will require housing and has mooted 3D printing as one possible solution.

A team in the School of Civil and Building Engineering at Loughborough University in Leicestershire (UK) has been working on the technology since 2007. It first developed a 3D concrete printer within a frame and more recently adapting it to work with a robotic arm.

Using a robotic arm means that the team can print up to 10 times faster and create a huge variety of forms, including curved, hollow and geometrically complex shapes. Lead researcher Professor Simon Austin said:

I think that companies who become early adopters of 3D printing will learn a huge amount about automation and robotics and how they can be exploited on a site.

The team decided to work with concrete as its main material and two years ago the research moved into a new phase. It is now building an industry prototype, working with partners -- construction firm Skanska, architects Foster and Partners, materials supplier Tarmac and Scandinavian robotics firm ABB.

The prototype is being tested at the Manufacturing Technology Centre in Coventry (UK), which to date has only worked with hi-tech industries. This represents its first collaboration with the construction industry. Professor Austin said:

3D concrete printing, when combined with a type of mobile prefabrication centre, has the potential to reduce the time needed to create complex elements of buildings from weeks to hours. We expect to achieve a level of quality and efficiency which has never been seen before in construction.

Professor Austin sees the future of 3D printing in construction as a way of printing key components of buildings rather than whole structures created in China. He said:

I'm not convinced 3D-printed concrete would appeal to the high-end of the housing market and in the developing world labour is cheap and they have developed ways of building homes with local materials that have worked for hundreds of years. So the idea of bringing a gantry and printing machine to a site to print whole houses is a bit far-fetched.

On the other hand, printing building components where a variety of geometry is sought is an attractive approach that will soon be realised.

Nature-inspired designs

It isn't just concrete that is getting a hi-tech makeover. Design studio Emerging Objects has come up with 3D-printed porous bricks called Cool Bricks that can be filled with water to bring down temperatures.

Each 3D-printed cool brick, has a three-dimensional ceramic lattice-like structure that can hold water in its pores, like a sponge. When air flows through the porous brick it absorbs evaporated water vapour, becoming cooler in the process. According to the designers, if all the walls of a home were built with porous, water-logged cool bricks, the air flow through them could bring down the home's internal temperature.

Although the most recent AI Group-HIA performance of construction index (PCI) suggested Australia's construction industry is in decline, there are still signs of strength based on the latest release of the Rider Levett Bucknall (RLB) Crane Index.

The index shows the number of cranes in Australian cities jumped around 20% at the end of March 2016. This translates to 647 cranes, an increase of 113 cranes since the last index was calculated six months ago.

The national total of 647 cranes shows the construction industry's strong appetite for residential housing, which increased as high-rising housing projects grew to 81% of the total from 79% at time of the last count, at the end of September 2015. Commercial construction accounted for just 45 cranes, three fewer than six months earlier.

The increase in the number of cranes on residential projects rose by 104 to 525 in March from September. Not only did the total grow, but the "churn" factor also revealed a frantic pace of activity, with 264 cranes being removed from residential projects around the country, and 368 erected.

The rise in cranes in March paints a picture of strength in the sector belied by official figures showing that approvals of new apartments have peaked and slowing. RLB director of research & development Stephen Ballesty told Fairfax Media:

It's not showing the slowdown that we're expecting. Not only is the number of cranes increased, but the cranes are active. I take heart from the churn rate that the cranes are not only out there, but they're required to move from site to site within a six-month cycle.

But the figures reveal the lag that exists between approvals and current activity. The current number of cranes is the result of approvals passed up to three years ago, indicating that large numbers of housing-dedicated cranes will stay on the horizon well into next year.

The latest crane index also reinforces the variations between regions in the strength of activity. Cranes erected on the east coast amount to nearly 84% of all cranes sighted in Australia and more than two-thirds of residential crane activity was located in Sydney and Melbourne.

The number of cranes rose or was unchanged in every city with the exception of Perth, where the total fell by two to 45. Brisbane was unchanged at 104, although the market was active, with 83 cranes being taken down and the same number erected over the six months to March.

Gold Coast recorded a boost, nearly doubling to 30 cranes from 16 at the end of September. Newcastle on the NSW central coast has previously been included as part of the Sydney total, but was broken out separately for the first time, reflecting a city that now has nine cranes -- equal to Adelaide and more than Darwin which has three.

As the economy evolves and high-rise residential construction comes off the boil, the number of cranes is likely to fall even as other areas of construction [such as infrastructure] provide the impetus for continued growth. They won't use as many cranes, Ballesty said.

The latest official figures show the value of residential construction work jumped almost 13% in the September quarter from a year earlier to $13.55 billion. He said:

The underlying value of work in the market should continue beyond 2017 through infrastructure. Infrastructure will underpin workloads that probably won't be reflected in the crane index to the same extent, relative to its value.

AI Group-HIA index

The AI Group-HIA performance of construction index fell 0.9 points to 45.2 in March, making it the fastest decline seen in 13 months.

The PCI measures changes in activity levels from one month to the next. Anything above 50 signals growth, while anything below that level means contraction.

Activity levels in housing and engineering construction contracted at a faster pace while growth in apartment and commercial construction slowed sharply compared to one month earlier.

According to Business Insider, the contraction in the sector would be significantly steeper without growth in apartment construction, an area that has caused some angst recently given warnings over potential oversupply in some major urban centres leading to price declines. Tighter restrictions on investor lending and higher interest rates are also being felt, further clouding the outlook for apartment construction moving forward.

In terms of the activity subindices, new orders continued to decline, albeit at a slower pace, while firms shed workers at the fastest pace seen in 15 months. Peter Burn, Ai group head of policy said:

With new orders across the sector also falling, the immediate outlook for construction is for further contraction.

Geordan Murray, an economist at the HIA, concurs with this assessment. He said:

While there is a good pipeline of work that should sustain an elevated level of residential activity throughout the first half of 2016, the falls in the PCI indexes for houses and apartments imply residential activity may ease in the latter part of the year.

This is a concern because the ongoing contraction in mining-related work still has a way to go yet. It is unlikely that a pick-up in conditions in other sectors will fully offset the contraction in mining investment over the next few years, but we need to give non-resource businesses the best possible chance. Bolstering business confidence is the key.

To read more about the latest performance of construction index, go to:

Approvals for medium density housing, including units, townhouses and semi-detached houses have overtaken those for free standing houses for the first time, according to the Bankwest Housing Density Report.

It reveals that in the year to October 2015, there were 117,552 building approvals for medium density housing compared with 115,634 for freestanding homes.

The report -- which each year mostly focuses on the 12 months to November -- found the scales then tipped back slightly in favour of stand-alone homes, but the trend towards medium density is clearly gaining momentum.

In the 12 months to November 2015, there were 231,489 building approvals across Australia. Medium density housing approvals jumped 33.9% to 115,731 (from 86,430) sitting close to the 115,758 approvals for stand-alone homes. Growth in stand alone home approvals, for the same period, increased by a sluggish 1.5%.

Bankwest private banking general manager Greg Caust said the results reflect a long-term shift towards medium density, which show no signs of abating. He said:

That 12 month period to October was a record breaker. I have no doubt medium density approvals will shortly exceed approvals for stand-alone homes -- not just occasionally, but on an on-going basis.

The increase in medium density housing approvals is centred on the capital cities, with rising prices driving buyers toward more affordable options. Canberra had the highest proportion of medium-density housing at 74.2%, followed by Sydney on 69.4%. In Brisbane the proportion was 64.5% and in Melbourne it was 57.9%. Caust said:

Higher density housing trends may be developing due to affordability issues, however they also mean society is moving toward more sustainable living. If urban sprawl is contained, populations will be closer to infrastructure, including health and education services and public transport networks. These services then can be better patronised and more efficient.

Apartment building is reaching its peak and all cities, except Sydney, will be in housing oversupply by 2017, according to BIS Shrapnel's 2016 Building Industry Prospects report.

The report recently predicted Victoria would be the most oversupplied market in the country, led by high-density apartment development in the inner and middle suburbs. BIS Shrapnel's forecasts the state will have 7592 more dwellings than it needs by the end of the year and 21,881 more homes than it needs by 2017. At the group's Building Forecasting Conference, BIS Shrapnel managing director Robert Mellor said:

In Melbourne the oversupply will be significant, in Brisbane it will be worse. It is an accident waiting to happen.

Mr Mellor said the downturn in high rise apartment construction would be significant, with the apartment commencements in the Melbourne and Brisbane dropping up to 60%. And that would impact on all parts of the business from site values, to apartment sales, to finishing trades.

BIS Shrapnel associate director Kim Hawtrey is also concerned there could be a "very messy end" to the apartment boom.

Mr Mellor said that dwelling commencements would peak nationally in the March quarter at record 221,000, with the big increase in high-rise apartments, not traditional detached homes.

By 2016-17, each state except for NSW will be in dwelling oversupply. BIS Shrapnel estimated that West Australia would be over-supplied by 9000 homes and Queensland by 6400.

In NSW a significant shortage of 41,031 dwellings is expected in 2017, a small improvement on a shortage of 53,386 homes in 2016. Sydney's undersupply is still so extensive that the city faces little chance of overcoming it by 2020 unless construction holds at current record levels, Mr Mellor said.

At the same time the key drivers of demand are in decline. Net overseas migration has halved from a high 300,000 in 2008-09 to an expected 150,000 this financial and less in 2016-17.

Also, investor demand has dropped down to 12% in the year to January, as banks have tightened lending in response to Australian Prudential Regulatory Authority guidelines. Investors have responded to the rise in prices and fall in returns.

Another key driver of demand, from first-time buyers, remains weak, with the numbers in the key age group of 20-34 year-olds actually falling.

The tiny house movement has gained more traction in the US than Australia. It has a reputation of being a fad that is only popular among young people who enjoy the novelty of building their own home and living in a small space. Residential industry experts have also questioned the place of tiny houses in the broader housing market.

However, this hasn't stopped Rod Stambaugh, founder of Sprout Tiny Homes in La Junta, Colorado USA from creating a business that is betting on the lasting popularity of tiny homes. Not only did Stambaugh become a custom tiny house builder, but Sprout is one of the first developers of tiny home communities in the US.

Another company banking on the tiny home trend is US-based building materials retailer, 84 Lumber that has just launched a package for tiny homes for customers.

New types of neighbourhoods

Sprout is preparing to break ground on two tiny house communities in Colorado this year. The 200 plus homes combined make them the largest development of its kind in the US.

When he started out, Stambaugh only had construction experience building homes while at university. He has spent the 23 years in the mobile electronic payment industry. He told Construction Dive:

I took a big left-hand turn two and a half years ago. I'd been studying the tiny home industry and thought it would be pretty big. I decided to see if we could dominate it.

In 2013, Stambaugh set up a manufacturing facility in La Junta and formed a team to build Sprout's first tiny home. He said construction of the first house was a "learning process" and took longer to complete due to Sprout using the traditional stick-built process, which the company has since improved upon. After finishing the first small house, Stambaugh took it to a Denver home show and drew major attention from attendees.

Soon after that first surge in interest, Sprout started looking for ways to improve its custom homes and the building process. He said:

Along the way, we really decided to focus on building high-quality, high-end, chemical-free homes.

Sprout switched to using structural insulated panels (SIPs) -- a composite building material -- to make the building process more efficient, as well as enhance the final product. He said:

It just makes the home stronger, greener, straighter. We also focused on a really paramount feature being chemical-free interiors.

The strength of the SIPs panels allows the homes to be driven thousands of miles without experiencing cracks or structural issues. Stambaugh said:

We tow these things 1,500 miles, and there are absolutely no issues at all. There are no cracks in the drywall. If that was stick-built, it just wouldn't handle it.

All of the interior features for Sprout's tiny homes are custom-made, Stambaugh said.

There's no real great furniture, appliances, or anything that's been built in any kind of sustainable way for tiny homes.

Sprout now offers three tiny house models -- the Aspen, Birch and larger Waterhaus. The company has grown to employ a staff of nine people, but Stambaugh predicts that number will grow to approximately 35 in the coming months as the new communities start to become established.

He said the company has built 22 tiny homes since Sprout's debut, with some on wheels and others on foundation. The average price of tiny houses sold so far is approximately USD60,000, and build time from start to finish takes only 30 days.

Despite Sprout's success in the individual custom tiny home market, Stambaugh said his clients kept lamenting concerns about where they would ultimately put their small houses.

Zoning wasn't very friendly in various towns and counties and cities, so we took a step back and started working with different cities.

Walsenburg, Colorado is a town of 2,927 residents and the future home of one of Sprout's tiny house communities. It was the second city in the US to change its zoning laws, which now permit buildings smaller than the previous limit of 600 square feet. Stambaugh said:

Once that happened, we said, huh, maybe we need to become a developer.

Sprout purchased 4.6 acres in Walsenburg with plans to build a 33-unit development of tiny homes. Soon after, Sprout also bought 19 acres in Salida, Colorado, a town of 5,200 residents, and plans to build 200 tiny homes and 96 storage units. The company will offer tiny homes in the 260-square-foot to 760-square-foot range.

In the larger Salida community, the tiny houses will be available for lease. Stambaugh said that to build the 200 homes, Sprout would set up a temporary manufacturing facility on the Salida site, build the houses there on foundations, remove the temporary facility, and build a storage facility on that site.

In Walsenburg, Stambaugh said Sprout is considering a different approach and will likely offer about half of the homes for sale and half for lease.

He emphasised that these communities will feature more than just houses, as they will also include walking trails, retail space, clubhouses, fitness centres, and restaurants in some cases.

In the Salida community, Sprout has already seen significant interest from potential residents. Stambaugh said the serious buyers are in the 50 to 60-years age range.

In his experience, most buyers aren't millennials struggling to purchase traditional-sized homes. Instead, the majority of Sprout's customers are baby boomers looking to downsize after their children left the family home. Stambaugh said:

[The trend is] taking off because people are making lifestyle decisions and choices to live smaller. We see the market a little bit different than what you see on television. Most of our customers are baby boomers. They're still entrepreneurial, and they're doing it as a lifestyle decision as opposed to for necessity. And honestly, that's the kind of folks that these communities need. They're still good contributors to the local economy, and they're doing it by choice.

In addition to the two developments in Colorado and similar projects in the works, Sprout has also ventured into the office pod market.

A scientific research company in Southern California that was growing faster than its headquarters could handle asked Sprout to build office pods for physicists and mathematicians. Sprout built 10-foot-wide by 20-foot-long pods with its own environmental controls that the research company could sit on their property.

Stambaugh said the market "hasn't even started to see the tip" of the tiny house trend. He also believes that, overall, tiny house developments could be the remedy for some cities' severe lack of affordable housing inventory.

Tiny houses for the masses

As a retailer of building materials and services, Pennsylvania-based 84 Lumber has just launched a series of tiny houses, available in flexible packages targeting anyone who might be interested in this lifestyle. The company is trying to make tiny house living as accessible as possible, whether the customer is serious DIYer or someone who just wants a fast, easy turnkey micro home.

It spent the last six months developing a line of four tiny house models, all of which are under-200 square feet and are now available to order. The estimated turnaround time is about eight to 10 weeks for a fully outfitted home.

The Roving, the first model with a fully built-out prototype is a 154-square-foot tiny house with cedar lap siding, a lofted full-sized bed, mini front porch, and reclaimed wood details. The other three models range in styles from the cottage-like to the more modern.

Beyond the design, 84 Lumber's "cater to everyone" approach also extends to the packages and pricing. For those who are ready to roll up their sleeves and build their own tiny house, the company offers a starting USD6,884 (AUD9,062) "DIY package" that includes architectural blueprints, materials list, and a trailer outfitted with a subfloor and ready for walls.

Next level up is the starting USD19,884 (AUD26,176) "Semi-DIY package" that includes a "shelled in" tiny house on a trailer, along with windows, a door, a shower, blueprints and a material list for finishing the home inside and out.

And starting from USD49,884 (AUD65,669), the move-in ready option comes fully furnished with a trailer, composting toilet, Energy Star-certified appliances, and LED lighting.

84 Lumber's tiered packages and national footprint means the tiny houses can be ordered in any of its 200 stores around the US.

The Housing Industry Association (HIA) says renovations activity is slowly getting its momentum back after declining to a 10-year low in 2013 following the global financial crisis.

The HIA expects a gradual upturn in renovations activity will be underpinned by a steady increase in the number of detached houses aged 10 to 20 years. They account for a disproportionate amount of renovation jobs, between now and the mid-2020s.

Strong property prices have boosted demand for renovations in markets like NSW. HIA senior economist Shane Garrett said many Sydney households that had been planning to move house find it is now more affordable to undertake a major renovation instead.

Homeowners have previously leaned more towards upgrading if they outgrow their current property but renovation appears to have become a more appealing idea, according to Mortgage Choice spokeswoman Jessica Darnbrough. She told AAP:

Recently because property prices have continued to go up, people are seeing more value in renovating, using the equity.

Darnbrough believes that while homeowners could sell in the price boom, they would also have to buy again at high prices. So they are now thinking the cheapest and most effective way of making their property work for them is renovation.

The modest recovery will also be helped by record low interest rates and improvements in economic growth and the labour market, although the tightening of mortgage credit conditions towards the end of last year has cast an unwelcome shadow, said Garrett.

We're still seeing activity accelerating gradually...If prices in say NSW weren't growing as quickly as they're growing at the moment, what would have happened is that people who wanted to upgrade their home would have just moved home.

But because prices are growing so quickly, the cost and expense involved in moving to a bigger home now is so punitive that people are saying, 'look why don't we just renovate our home instead and achieve our increased living standard in that respect'.

Garrett said the knock-down and rebuilds market has also strengthened on the back of stronger home price growth.

Riki Tawhara, Hills District and western Sydney manager for buyer's agents Cohen Handler, is tipping an increase in renovators.

A lot of my clients who bought 12 months ago at the so-called peak of the market have managed in a year to manufacture quite a lot of equity in their property -- not enough to buy again, but enough to draw that equity out and do a renovation on their property, increase their yield and the overall value of their property.

Renovations market at a glance

Source: Housing Industry Association

Costs of renovating

The quarterly Renovation Consumer Price index from ServiceSeeking.com.au found that renovation costs in Queensland fell by 0.35% to $62.09 an hour in the last three months of 2015 compared with a national average increase of 1.48%.

The index, which analyses 52,000 quotes submitted by tradespeople on the website, found landscaping, plastering and painting costs had fallen.

Although there was a decrease overall, Queensland homeowners are still paying 5.4% more than Victorians, the cheapest state for renovations. There were big increases in concreting and carpentry costs.

The cost of hiring a concreter rose by 22.4% compared with the same time last year, rising to $65.82 per square metre. Carpentry and building rates also increased, rising by 10.41% and 1.8% respectively.

Master Builders Queensland deputy executive director Paul Bidwell said building costs were still rising, driven by shortages of some trades and rising prices of raw materials. He told the Courier Mail:

There are currently shortages of bricklayers, carpenters and site managers, which is going to have an impact on costs. With the lower dollar, prices of imported materials such as hardwood also are rising.

Bidwell said he did not see building costs falling in the foreseeable future because of these factors.

The Construction Dive website takes a look back at the most interesting technological advancements in the industry throughout the last year. In 2015, there were many developments that could have a major influence on the industry. Here are just a few from the past year.

Construction robots revamp building process

Startup company Asmbld, based in Brooklyn, New York (USA) is working on a robotics system that can reconfigure a room in minutes. Co-founder Petr Novikov explained to TechCrunch that it is "like 3-D printing upside down".

The "Project Dom Indoors" process involves tiny robots living inside cubes created from 5-inch tiles and aluminium studs that make up the floor of a room. Those cubes can rise out of the floor to create walls, surfaces and tables, and then slide back into their original position in the floor.

The robots have the ability to assemble the cubes into new configurations, transforming a conference room into a lounge or open workspace, for example. Asmbld said it would cost approximately US$12,000 to install the system in a 500-square-foot room, and would involve re-flooring a space to make the floor five inches higher than the current floor. Asmbld's technology could reduce construction and demolition waste, as reconfiguring and redesigning rooms wouldn't need to result in any waste. And replacing construction workers with the tiny robots offers the opportunity for major time and labour costs, the company said.

3-D printer builds 1,000 square feet per day

Russian engineer Nikita Chen-yun-tai developed a 3-D printer that can create a 1,000-square-foot building of any height in one day. The Apis Cor printer, shaped like a tower crane, sets up in the middle of the building and can print a house layer by layer, at high speed, with a commercial extruder rotating in two planes.

The Apis Cor has a printing zone of up to 630 square feet, can print sloping walls horizontally and vertically, produces no construction waste, and provides a cost savings of up to 70% over frame construction.

The future of concrete?

Interest in permeable concrete - primarily its ability to prevent devastating damage caused by stormwater runoff - has skyrocketed due to a video demonstration in which a parking lot paved with a product called Topmix Permeable absorbs more than 1,000 gallons of water in a minute.

According to Lafarge Tarmac, manufacturer of Topmix Permeable, stormwater routinely overwhelms older US wastewater systems, causing untreated sewage to be dumped into local waterways and onto public beaches, creating a significant source of pollution for rivers, streams and reservoirs.

Products like Topmix Permeable are applied over a base layer of gravel and, depending on the permeability of the substrate, the water is allowed to either permeate the ground below or is diverted elsewhere, over a period of time, through a series of pipes.

However, the empty spaces in the permeable concrete that allow water to flow through have limited the product's use in more rigorous applications, such as heavily-travelled highways, and have raised questions about possible damage from freezing water.

The following is an edited transcript of the speech given by Mark Laidlaw, CEO of Mitre 10, on 16 October 2015 at the 2015 National Hardware Industry Luncheon. The speech has been edited for purposes of concision and clarity only.

Transcript

Thanks for the opportunity to come and talk to you all today. My aim today is to talk about where we see the industry, the hardware industry, and where we see a little about Mitre 10's journey, and what we need to do in the future. I'm very happy to take some questions as well.

I just went over and said g'day to the Danks guys and it was very nice to meet them. We do have to be aware that we are competitors in this room, so I probably do have to tailor some my normal comments, and I'll do that. It is important.

[Introduces the Mitre 10 senior executive team.]

Culture is very important. These are tough jobs. Whenever you are up against big corporates, you rely on your team. These guys come from small business backgrounds, Carl's dad ran a milk bars and greengrocers, Chris' dad owned butcher shops.

It has to be in your DNA. The thing about us is we fight for small business every day. That is the difference between us and other companies. Yup, Metcash is a corporate. But we are a wholesaler. We don't want to get involved in the retail side. We want to provide solutions for our members, but we don't want to run the stores.

It is a big difference to our competitors. When you get a job at Mitre 10 you have an induction, and the first thing we say is, just remember your customers, the Mitre 10 stores, they are putting their houses on the line each and every day. They are not getting a wage or drawing a salary every month, they have the bank to pay every month. Once you understand that, you realise the importance of the independent sector.

All good.

So, we have some charts here. I know a lot of you in the room, and a lot of you have been on this journey with us since 2010, and you know our strategy. So this is really, in many cases, an update on where we see the strategy going. It is still the same strategy, because we are fighting for survival as an independent sector. But it is a very interesting state of play at the moment.

As I said to the Danks guys over there, there is no body in hardware that actually records market share, category shares. We come from a background in grocery where every week AC Nielsen would give us the categories. How much market share Coles had, how much Woolworths had, in soft drinks or deli or whatever.

That does not exist in hardware, so you are reliant on the numbers from what you read. So these numbers, this is our best estimate. It is a busy chart. I will just give you two or three take-aways from that chart.

The reason it is important, yes, Woolworths and Bunnings, they talk about a $45 billion hardware market, home improvement market. Of course, it suits them to say that, because they say, certainly Bunnings has about 18% of that market. And they throw everything in there, IKEA, Harvey Norman, Barbecues Galore, the whole lot is wrapped up into that $45 billion.

We define our market as a $27 billion dollar market. The lay of the land is something like [this chart]. You've got your big-boxes in one corner, you've got your specialists up in the other. And then you've got this incredibly fragmented marketplace in the middle which are all these "planets". Blue is Mitre 10, red is Woolworths. Yellow is large independents.

That's $27 billion, and you have a look at that big green moon there, which is Bunnings, we know their number is at $9 billion so certainly in that sector, Bunnings has 33% of the market. It is important we don't lose sight of that.

The rest of us are much smaller players. There is no other real dominant player in that marketplace. In the years ahead to really survive, and to co-exist with Bunnings - remember Bunnings is a powerhouse, and a competitor to be respected, because they are a corporate that is loved by a community, and that is very unusual.

Most of the community hates Coles and Woolworths, but they have to shop there. Bunnings is a corporate that people love going to, and shopping at on weekends. Taking the kids there to the playground, enjoy the sausage sizzle that is out the front. They are a corporate that is much loved, so we have to understand that and co-exist with them. They are not going to go away.

So we have to do it better, do something better, find our niche, be famous for something else.

So at some point all those planets in the middle - and we desperately try to do this - we need to get together, we need to mount a campaign against Bunnings. It will be a very sad day the day that Bunnings buys up all the timber in this country. Could happen. We are famous for timber, we sell a lot of timber and we need to keep it that way.

So, the split of it is, and again I'm happy for the Danks guys to put their hands up and tell me whether I'm right or wrong, but there is a different spectrum in there in the middle of the map.

There are guys who are fighting for trades businesses, and we certainly want to enter that market. We have about 130 trade centres, and in recent years we have formed some very good alliances with groups such as Banner that came from Natbuild, with the Dahlsens Group, with the Chambers Group. We certainly are focused on going out there and getting those trade businesses.

Danks have done the same. They have gone a different way, they have corporatised them, they have bought out those businesses. I understand that. Suppliers would love that, because you get compliance very quickly. So they've got 44 stores there that are company operated, and then they've also got the independent stores. And they have some very good independent stores, as we have.

Then down the bottom, there are a lot of small stores. Thrifty-Links and small Mitre 10s as well. The challenge is for those stores to survive. There is no question that the next couple of years a lot of small independents will disappear. It is a sad thing.

They can survive. If they are prepared to differentiate themselves they can survive, but it will be a challenge. And there will be a number of independents exiting the business, that is for sure.

So, in saying that it is important to work out how can Mitre 10, how can we as a wholesale business really work, to make sure everyone is viable? Remember our mission statement is to build successful independents, to make them vibrant. So for the rest of the time I would like to talk about the things we are doing.

Before I go there just the history, we came in in 2010, Mitre 10, I know Gary is over there. We had our challenges, and again it is very interesting when the previous CEO of your business - so the guy you take over from - goes and works for the competition, being Woolworths, then spends the next six months of his life targeting your stores and offering them big dollars to switch. That is a challenge.

But we withstood that challenge, and I'm proud to say that over the five years we have built our sales. In the marketplace where Bunnings is dropping 20 big boxes a year, and Masters was certainly dropping a large number (they have cut back now) but in that environment we have managed to continue to grow. We hit a billion in sales last year, and that is wholesale sales.

Over the journey over the five years we have averaged about 7% annual sales growth. So we are pretty proud of that. In a dynamic and competitive marketplace.

Of course that is done now, that five years is finished, and we've got to reinvent ourselves for the next five. For the oncoming competition.

Like most businesses, and I've read the Danks presentation, James Aylen presentation - it is a good one. The presentations are all very similar, we are all trying to do the same things. Not sure if he copied me or I copied him, but you can check that out.

We are all trying to do the same things, but ultimately it all comes down, you can write as many strategies as you like, but it all comes down to how you execute those strategies, in the end you know that. The winner will be the team that executes the best.

So on this slide are set out the five prongs of Mitre 10: retail and trade excellence, shopper led range and competitive pricing; trade; digital; data; insights; and supply chain.

So if I go through the group, retail and trade excellence, the next one is shopper led ranging and the pricing and the trade, Carl's team heads that. We have a very dynamic marketing manager, she is not here today, she runs the digital strategy.

She was instrumental in getting us the Block, there is a lot of good luck that comes along the way. We picked up Scott Cam in 2010. It was one of the first things we did in 2010 was to look for brand ambassador. We were presented with two or three.

You have to understand at that stage, Scott was the second guy on the show. We thought Scott appealed to the broader audience, to tradies to kids, to the female shopper, so we grabbed Scott and it ended up he was given his own show, The Block. In its reincarnation, as it had an earlier version.

We were fortunate with that, and we have been nationally running that series of The Block ever since. It is probably coming to its time, as people get sick of DIY programs. I am certainly sick of DIY programs - and singing programs. But it is probably coming to its time, but it has served us very well for five years. And our relationship with Scott Cam is going to continue in the future.

Supply chain is the other part of that under 25% of our volume goes through a DC. So a lot of the product goes direct to the store, which is exactly how it should be. We have three DCs in Australia, in QLD, VIC and WA.

So, touching on that in a bit more detail. Retail and trade excellence, we call it the Sapphire program. It really can be translated into "the store of the future". What does the store of the future look like? We learn as we go. We have had five years in this now, for grocery guys, a lot of the disciplines are the same, but we certainly had to learn about hardware and trade.

And so over five years we have done about 90 conversions, so we have converted stores from other places to Mitre 10, and we have learnt along the way. And we have a very good, albeit overworked store development team, that has come up with some pretty good store designs on what we think is the best store of the future. And it has to be driven by what the consumer thinks is the best store of the future.

Again we use the example. Supermarkets, Coles, Woolworths, milk at the right aisle and bread far left of the shop. You have to walk through the store, and it's not exactly setup for the consumer. I still get some argument from my "Mitre Tenners", but hardware was done a little similar, with paint all at the back, so as to pull consumers through to the back of the store.

We think being a consumer-driven business paint should be at the front and centre of the store and that should become your hub, and should have a very experienced customer service team operating out of that hub to service any questions the customers might have.

So that is one of the main standards under the Sapphire. Other things that we think are very important are to get your power tools right, to certainly have a trade drive-through, all elements that make up a Sapphire store.

We have developed our own paint counter for the colour centre, and I think we have that placed in six stores. So it is early days for us on Sapphire. The plan is for us to do 10 stores this year, with the full store of the future layouts, we have completed four, and to be honest the results are very good.

We are looking for a 15% sales uplift in those stores. They don't have to be big stores, so of those four we have completed, yes, one was Sebastopol (VIC), I encourage people if you haven't been to Sebastopol, go and have a look. We are very happy with the way it has turned out, it is a larger store with trade.

We have also completed a beautiful little store in Paddington in Sydney. Where is Richard from Valspar? Go and have a look, tell me what you think. It is a beautiful little store, convenient. That store will match up against any Bunnings.

So if you think about it, we have to have a store like Sebastopol in every country town, and we would like to have a little convenience store like Paddington in every suburb. That would be our dream. And the stores make sense.

So there are a number of the other elements that make up a Sapphire store. That is Sebastopol there with the colour centre and the power tools. Of course, it is only when you get all those elements of your store right that being local makes any difference.

So it is no good saying to everyone, "Oh we are local come and shop with us". If your standards are poor and your price is not right and your staff are not trained properly, being local doesn't mean anything. But if you can get those things right, the localness of the ownership is very important.

And you will see when you walk into that store, Ross and David Gay, their faces hit you in the front, much to Ross and David's embarrassment as they are very shy men. But once we got the standards right we wanted to promote it as being local owners in their community, and that worked well for us.

E-learning: Once you have set the store up, and again, preaching to the converted, it is so important that your staff are adequately trained so they can continue to maintain those very high standards. So we have a good e-learning program. I know it is a good e-learning program because our members pay for it. So that means there is some value to it. So if you put it out there and the members pay for it, you know there must be some value. It is not a freebie, it is not a giveaway.

...

But e-learning is serving us very well, and it is so important to train your staff.

It is all about a point of difference as we have talked. Bunnings is the competitor. We need a reason for people to drive past a Bunnings store and come to a Mitre 10. That is not easy, that is hard.

There are some things that consumers will go past a Bunnings store and Stihl is one of those reasons. How many stores, I think we have Stihl in about 80 stores. Eighty-six stores. It is a real point of difference for us, it is a good product.

Same with Weber, we all know Weber sells. And we are trialling at the moment a couple of other alliances, with Beaumont. We are excited about those alliances, and there will be others to come. Because Stihl and Beaumont won't ever go into a Bunnings. It is important.

Carl, thing about Carl, he will fight hard, I'm sure a lot of you guys in the room know that. He has the respect of the Mitre 10 members because they know he will fight hard on their behalf. If you went out there and asked the public about Mitre 10 pricing compared, or any independent pricing compared to Bunnings, they will say that Bunnings is cheaper. Not actually true.

Bunnings spends millions every year telling everyone about how cheap they are. So we independents get a bit of a bum rap on our price perception. So we realised we needed to do something about that.

So we set up a private label program, Buy-Right frontline private label program as an entry-point product, and it sells, it is going well. So it matches the Bunnings price, head-to-head.

It is interesting if you price check a Mitre 10 store, we have checked the whole store, and a number of them, particularly when Bunnings has come to town. In many cases, they had to put as many prices up as they had to drop prices. Hard to believe but it is true. You just have to make sure you have the right prices on the right products. So the private label program works well for us, and it has good take-up.

Ranging. Preaching to the converted again. But believe it or not, Mitre 10 in all its years, probably had a go with the Mega, but when we got in there, simple retail things such as core ranging weren't in place. Take my hat off to Danks, Danks were way ahead of us in this area. So we played catch-up in that, and we are getting some results here where we have actually defined the range.

It is probably our big program at the moment on those three categories where we can provide solutions for our Mitre Tenners. Again, the biggest challenge for independents, our suppliers tell us all the time.

You can agree something with Carl and his team in head office, and you can agree with the store owners, and then suppliers will get out to the store, and the guy in the store at that time, the store manager, has all the control, and has let a half dozen reps from foreign companies come in and fill the shelves.

It is an ongoing battle for us getting that discipline in the stores. It is a real focus for us now, making sure the core range is put in the Mitre 10 stores. So every Sapphire store that gets done, we don't invest into those stores unless the core range is in place which is important.

Trade. We are all fighting for this space as the planets showed. We have done our research, Natbuild has done its research, John Bowen has done his research, everyone has done his research about the trade customer, and the same things keep coming out.

I think it is important, it will be harder for Bunnings to do some of these things, but they will get there. They will get there eventually. So we have to beat them to the punch.

Trade, we want to dominate that, we want to be the big player in that. No one dominates it at the moment. It is all about that relationship piece, having the relationship with the tradie at every touchpoint. For the tradie time is money, you have to have a good system, you have to be getting that product out on site on time. That is what it is all about for the tradie. So a lot of our time and focus will be going into that.

And then other amazing simple things. Like at your store having clean toilet facilities, and getting a coffee and an egg and bacon roll. They are really important to the trade.

Who would have thought after seeing how comfortable those dunnies are on the site that they would have wanted clean toilets! Of course they want clean toilets. And not many stores provide them. And we now have clean toilets at Faggs, haven't we?

Makes all the difference. So simple things that get overlooked time and again. So that is the space we want to get better at. If you asked us who does trade well, we would say Bowens do trade well, in Victoria. They cross off on most of those touch-points.

Tait's is a powerhouse. Tait's is an amazing business, but Bowens have really picked up their game in trade, and we want to replicate that.

And the last part, digital. Of course in any retail business these days you've got to have a digital programme. You've got to do it right, it can be very expensive, it can get away from you.

We've learnt that through Metcash, Metcash has spent a lot of money on digital. In the end we ended up doing our own thing, on a cheaper basis and we've had some good results. It is called "omnichannel", it's a bit of a "wank" title, but it means you have to get across all the channels in digital.

We've got some things there, we've set up our own loyalty card, Mighty Rewards. We now have a lot of our stores on Mighty Rewards. It took a while for our members to understand what Mighty Rewards really was.

Of course it is all about getting to know what the consumer buys and what insights you get. It is so important to us now, we know when Bunnings do come to town and drop a big box near to you, you are absolutely reliant on the data that comes back from your Mighty Rewards programme.

We had it in Gympie, I think the Bunnings was 100 metres away, dropped a big box. We were able to know exactly what our customers were buying, and to target offers to those particular customers, and they have not gone to Bunnings those ones that were on the Mighty Rewards programme. It has been a very good result for us, so you should never undersell the importance of a really good loyalty programme.

Click and collect is also good, because of the convenience of the Mitre 10 stores, it is very convenient to go and pick up from those locations, particularly in regional towns. Click and collect is great, because it means the store owners don't have to carry stock. So if they order something, the order goes straight to the DC and we deliver it overnight, and the customer can pick that up within 24 hours, so the stores don't have to carry the stock, very important.

Tradies online, it will be the way of the future. It is amazing in trade, but you've got your older tradies, that have never known how to turn on a computer, and then you've got your younger tradies like my son coming through and it is all about the iPhone as we know, and it is that group of tradies that we've got to get ready for. So we certainly need technology and Tradies Online to deal with the trade market.

That is really all I've got to cover today, except that the key focus for us to go back and get our existing stores up to the store of the future standard, through the Sapphire store programme. It is about getting our range right, it is about getting the digital programme right.

I'm a firm believer that if we can get these things right, independents can thrive. Seen it, seen it in IGA. A good IGA will always better Coles or Woolworths. Bunnings is a bit tougher, because they are a bit sharper, but a good independent store can beat Bunnings. Firm believer in that. Hope we've got your support on that.

Thanks very much

Questions

Q: Just wondering if you have a particular demographic that you've isolated that is distinct from Bunnings? You have already spoken about tradies, any gender, or age demographics?

A: When we came in, the research said we just looked after the old farts, which is probably right. Mitre 10 customers tended to be of the older demographic. I don't mind that, because that is the growing area, of course, the baby boomers they have got money to spend and time on their hands and they love doing DIY, they are weekend warriors. So I don't have a problem with that.

So we believe that in our stores we can't be all trade, we certainly need a DIY element. Retail is important to our Mitre 10 members. It is just hard if there is a Bunnings down the road to complete on that, you lose your weekend trade to Bunnings.

But in country towns are stores would cater for everything. Excellent garden centres, good outdoor, DIY, but we think they need to have trade as a point of difference, because that is something Bunnings doesn't do. Our split is 51% trade, 49% DIY.

One of the pathways to better efficiency for the Australian construction industry is through the more widespread use of prefabrication construction techniques.

At the moment, prefab is a very small part of the Australian market. It is estimated to be worth around $4.6 billion per year. This means it makes up just 3% of the $150 billion construction industry in Australia. This is in sharp contrast to countries like, for example, Sweden, where prefab makes up over 70% of the residential construction industry, and Japan, where it accounts for over 15%.

It seems likely that the prefab market will grow over the next ten years. Forecasters estimate that growth may range from four to five times the current size of the market, with it becoming a sector worth around $20 billion annually. As this represents growth in a new market, it is a very worthwhile market for industrial and tool suppliers to explore.

A sign of that potential change is the investment being made in the research and development of this sector of the construction industry. For example, the Australian government announced in May 2015 that the University of Melbourne will receive $4 million to fund a new Australian Research Council Training Centre for Advanced Manufacturing for Prefabricated Housing.

One driver behind such investments is the "Productivity Commission Inquiry Report: Public Infrastructure" released in May 2014. The report suggested that prefab could supply one means of reducing government costs in building infrastructure, while also providing better outcomes.

The expanded use of prefabricated elements (such as curtain walls, modular elements, structural steel and precast concrete) and other off site techniques is seen by many construction industry commentators as having further potential to deliver significant productivity improvements.

Building on this, the state of Victoria has recently released a discussion paper highlighting the need and potential for advances in construction techniques. On the subject of prefab it states:

Off-site construction brings manufacturing techniques and disciplines to the construction sector including production line efficiencies, automation and advanced manufacturing techniques, mass customisation and complex systems thinking. This form of construction can offer reduced construction times, costs, project payback times and waste while improving workplace safety.

The opportunity

For suppliers to the construction - and manufacturing/construction - industry, this rapid growth in what has been a stagnant industry could represent a real opportunity. This brings up a number of questions. How is prefab likely to grow? What changes will it bring to the supply market? How can suppliers best take advantage of this opportunity?

To understand what the potential is, it's necessary to look at the drivers behind prefab adoption, the obstacles to adoption, and why it is likely that adoption will start to ramp up in the coming five years.

Obstacles to the adoption of prefab include the range of participants that need to adapt to change, and the pull of past, "traditional" practices. From the point of view of buyers, prefab continues to have a slight stigma attached to it. Prefab is also difficult for some lenders. Their expectation is to release funds as a build progresses. Prefab requires substantial investment before any on-the-ground results can be seen.

Despite these obstacles, there are growing incentives for the adoption of prefab. One driver behind the adoption of prefab is the need to limit the excesses of the construction "boom and bust" cycle. Increasing productivity makes it easier to balance supply and demand issues.

Additionally, with a sharp decline in manufacturing sectors such as automotive, prefab could be a viable, less vulnerable form of manufacturing to provide employment and make use of a well-developed manufacturing skill-set. This is one factor behind the increase in funding and encouragement from the Australian government.

As well as drivers, there are also enablers to adoption. These are, for the most part, technological. In particular, the rise of building information modelling (BIM) makes prefab a better fit for more complex construction projects. BIM assembles and inter-relates all the information about a project, making it easier to preplan for requirements.

Further improvements to the manufacturing techniques needed for prefab, such as computer numerical controlled (CNC) systems based on three-dimensional modelling are also likely to boost prefab's acceptance.

Difficulties in prefab adoption

An academic paper from the Queensland University of Technology entitled "Reshaping housing - the role of prefabricated systems" has supplied some interesting responses to questions about why the Australian industry has been slow to adopt prefab. Its starting point is:

Prefabrication is a radical innovation within the housing system because the dominant methods for completing a project are entirely restructured.

The paper provides a good summary of the role each participant plays in construction, and how they have tended to limit the adoption of prefab in the past.

The overall thrust of the difficulties relates to the change from a process of custom, individual construction, to one which operates on a manufacturing basis. This means it can have the advantages of economies of scale, but there is also additional risk involved, especially during the startup phase.

Suppliers

Material suppliers and prefab constructors frequently need to rely closely on each other, especially during the expansion stage of this industry sector. For example, if a supplier is providing a custom electrical harness for a prefab module, it would be necessary to gear up production for a set number of these in order to make use of efficiencies of scale.

That means the supplier is dependent on the prefab constructor buying a large number of wiring harnesses. Conversely, if the prefab constructor is relying on the supplier for the custom-designed wiring harnesses, he will be in considerable trouble should the supplier go out of business, or suffer other business problems.

In more standard building situations, both the supplier and the builder would have multiple sources for buying and selling, and thus face less risk.

Builders and contractors

Startup risk is particularly strong for this group. Moving to manufacturing of building components means that capital is required for plant and machinery. Given the volatility of the housing/construction market, and the time-lag necessary to setup manufacturing plant, businesses would frequently have to seek investment capital during a down-cycle, so as to prepare for the up-cycle.

Added to this is an inbuilt resistance to patterns of work and techniques that many builders could find less engaging than familiar practices. Builders often see themselves as craftsmen, and building work as an escape from factory-like work. Turning parts of their craft into production-line tasks could seem to many a difficult adaptation to make.

Consumers

Prefab housing continues to carry a stigma for many consumers. In Britain, for example, the end of World War II saw the rapid construction of prefab housing, specifically for returning war veterans, as part of the general repair of many cities that had suffered from civilian bombing.

In Australia, prefab building has been frequently used in the construction of government-subsidised accommodation. This type of housing focused more on building quickly and cheaply, which led to some comprises in terms of both quality and design.

Added to this history are present concerns that prefab design will not permit adequate customisation, that it will be bland, unattractive, or somehow awkward.

Business/Institutions

For businesses, federal and state governments, as well as institutions such as hospitals and schools, difficulties with prefab relate more to the design and collaboration processes required.

Studies have shown that prefab construction works best when the designers and building contractors begin working together early in the process. This tends to conflict with the more traditional institutional working model that sees building contractors brought in only after the design has been finalised.

Drivers of prefab take-up

For forecast growth in the use of prefab to take place over the next 10 years, powerful incentives will need to be in place. Many of these drivers are key issues for Australia as it transitions from a resources-led economy with governmental support for local manufacturing, to an economy with a broader focus and fewer governmental supports for industry.

Economics: Inelasticity

One of the economic fundamentals that will encourage the development of prefab is the "inelasticity of supply" experienced in Australian construction markets.

This term refers to conditions in a market where increase in price does not lead to an increase in supply. Instead, as increased demand causes a rise in price, supply continues at a constant rate, and price becomes all about distribution.

This is what is at the core of most "boom and bust" conditions in markets. Under boom and bust conditions the producers of goods, such as construction companies, find their share of the value/income that is generated actually reduced. Instead it is the "deal-makers", those who control distribution, that benefit the most.

This is not a good situation. While deal-making is an essential part of any market economy, when it becomes central to a market, the real productive parts of the economy suffer. Near the top of a boom, governments and companies no longer pay enough attention to making great buildings that suit the needs of the economy. Instead, they concentrate on financing.

Productivity

One way out of this loop for construction is through improving efficiency. More efficient construction processes, enabling buildings to be built more swiftly and with less money, can restore some elasticity to supply. This can help reduce the peak of a boom/bust cycle, and, most importantly, creates a virtuous cycle by triggering more investment in improving efficiency.

Building design, overall planning, and more effective work by those constructing the building will receive the attention they deserve. All these changes reduce the risk of construction, which leads to easier financing, reducing its role in determining how construction takes place.

Surplus manufacturing skills

As industries such as automotive manufacturing begin to fade in Australia, there is a powerful incentive to make use of the manufacturing skill-set the workforce has developed in new areas. The Australian Government's funding of the Australian Research Council Training Centre for Advanced Manufacturing of Prefabricated Housing mentioned above is one sign of this. It is one of a $20 million basket of initiatives aimed at helping build industry in the wake of cut backs in direct government support elsewhere.

What this means, of course, is that the construction industry may find a number of new entrants whose expertise is not directly in construction, but rather in manufacturing. Companies coming from this basis will be far less influenced by concerns over "traditional" means of construction, or the preservation of building's craftsman culture.

Increased environmental performance

The use of prefab has a number of environmental advantages. These relate both to the actual construction of the building, and its performance after construction. According to an article entitled "Prefab revolution? Factory houses are the secret to green building" written by QUT professor Karen Manley and published in The Conversation:

The building sector globally currently consumes more energy (34%) than the transport sector (27%) or the industry sector (28%). It is also the biggest polluter, with the biggest potential for significant cuts to greenhouse gas emissions compared to other sectors, at no cost.

...

Modular or prefabricated green buildings, designed and constructed in factories using precision technologies, can help achieve these standards. These buildings are higher quality and more sustainable than buildings constructed on-site through manual labour. They are potentially twice as efficient compared to on-site building.

Enablers of prefab adoption

With the possible exception of more government support, most of these incentives for prefab construction have been in place for the past decade or two. What really makes it more likely prefab will grow market share over the coming decade is that a number of enablers have clicked into place. These help to overcome, or at least blunt, many of the objections to prefab that have been persuasive in the past.

Building information modelling

The single biggest enabler is, without doubt, the rise of building information modelling (BIM). BIM is a construction requirement that means that, especially on more complex constructions, a virtual model of the building under construction is built up. Sometimes described as a "three-dimensional database", BIM helps to create a working data model of the building before it is constructed.

In the past, to make prefab work well, it was necessary to construct something close to such a model, which frequently proved an expensive and daunting task. As many, if not most, complex construction projects today require BIM, that cost equation is now flipped around. Rather than the need for BIM inhibiting the use of prefab, with BIM already in place, a good way to amortise its cost is to use prefab.

Better manufacturing techniques

One of the major advantages of using prefab is that constructing building components offsite in a factory site allows the use of more precise construction techniques. For example, the parts of a wooden panel can all be cut using computer numerically controlled (CNC) systems, which can deliver millimetre-perfect results.

Advances in technology have meant both that the costs of such systems have been reduced, and that the systems have increased their capabilities and reliability. A good example of this is the Enduroframe system from BlueScope Steel. This is a rollformer for light steel that works in conjunction with BlueScope's own software, its Endurocadd system.

This product helps manufacturers develop framing systems can be easily designed, detailed and manufactured in a factory with reduced material usage, less labour and faster turnaround.

Customisation options

As the tools and techniques improve, prefab manufacturers have found it easier to offer multiple options and customisation for their products. In an article entitled "The changing palette of prefab in Australia" which appeared in Architecture & Design, author Nathan Johnson quotes Rob Colquhoun, director of Prebuilt, a builder of prefab units in Victoria as saying:

Traditionally, kit and transportable homes were constructed using materials such as treated pine logs and conventional plywood or Colorbond cladding products. This palette was driven by the caravan park market and a lower cost mindset. But due to the quiet but firm direction of architectural design, materials that are now used include a variety of proprietary wall linings such as James Hardie Scyon products, Weathertex, Alucobond, high grade timber cladding such as Woodform and even ceramic coated metal cladding called Ceratec Vitreous Enamel Cladding and colour through cladding materials such as Vitrapanel.

>http://hnn.bz/hickory-diagram.png}Hickory is at the forefront of prefab development}http://www.hickory.com.au/docs/hickory-building-system_capability_electronic_v1.pdf

As the article mentions, companies that offer prefab bathroom "pods" such as Hickory Group, Interpod, PreFab Bathrooms and Podfirst have also upgraded their materials, and offer a range of finish options.

>http://hnn.bz/harwynOfficePod.jpg}Harwyn manufactures prefab office pods to a high finish}http://www.architectureanddesign.com.au/projects/large-commercial/the-harwyn-pod-a-picture-of-the-burgeoning-aussie

Daiman Otto, chairman of PrefabNZ, sees mass customisation as offering prefab many opportunities to expand its market share. While the capability exists, however, a number of linkages have yet to be made to see it become viable. Interviewed by the website Sourceable, Mr Otto says:

All of the means and mechanisms are there, all the tools are there, all the digital fabrication know-how is there, all the machinery is there, but what's not there is an interface between all those things to line it all up in a loss-free process.

If you're undertaking renovations, for example, you can have a designer come to your house, digitally measure it up, then have those figures exported to a 3D model of the house, run an algorithm on your aesthetic preference, and generate a number of options for how you might create that new space.

That same model can then be sent to a 3D printer or a CNC fabricator or some other process to make the whole thing - so everything is already there, it's just that the interface for getting those things working together hasn't appeared yet.

...

It's inevitable that it will happen, and I think there are people already working on aspects of that - there are people working on the interface between software and CNC machinery for example, as well as people working on models that have structural information embedded in them.

Direct benefits of prefab

A report from the US entitled "Permanent Modular Construction: process, practice, performance", published in April 2015 by the Modular Building Institute Foundations presents a portrait of the use of prefab. It uses a wide-ranging set of case studies, drawn from a number of countries including Australia to survey the advantages and disadvantages of using prefab.

The two most interesting graphs from this report are these. The first compares a square footage cost for modular versus conventional construction:

>http://hnn.bz/modular-cost-comparison.png}Cost per square foot for modular and conventional construction}http://hnn.bz/modular-cost-comparison.png

The second compares schedules:

>http://hnn.bz/modular-schedule-comparison.png}Schedule comparison}http://hnn.bz/modular-schedule-comparison.png

It is evident from these graphs that at least in terms of the projects studied, prefab construction produces real benefits.

The benefits of prefab techniques can extend beyond the building site. In a June 2015 article entitled "Worker Shortage Hammers Builders", the Wall Street Journal outlines how Eckardt Electric, a electrical building contractor located in the US state of Georgia uses prefab techniques to overcome a shortage of skilled workers.

About 10% of Eckardt Electric's 130 workers are now on the shop floor at any time, rather than out in the field, up from 2% a year ago. When possible, Eckardt uses a computer-generated model to plan the layout of electrical systems going inside buildings, and then assembles as much as it can in its indoor prefabrication facility. For instance, workers can put together conduit runs and make connectors, label the products and ship them on pallets. At a job site, "a guy in the field puts the puzzle together." The ultimate goal is to have about a quarter of the workers inside.

>http://hnn.bz/eckardElectricStudio.jpg}Eckard Electric takes on complex projects}http://www.eckardtelectric.com/projects/commercial/interiors/wxia-studio

The article also details activities at Pivotek, based in the US state of Ohio. The company specialises in prefab bathrooms and kitchenettes. The company stresses that it finds it easier to hire employees than construction companies do, at least in part because the working conditions are so much better. Where construction workers have to deal with snow, rain and wind, at the prefab factory they work inside. The wages may be lower than they are in construction, but the employees feel compensated for this by the more comfortable and much safer work environment.

Prefab in practice

As it has developed further in the 21st Century, prefab manufacturing has found ways to overcome some of its inherent inefficiencies as well. One of the major costs, for example, is transportation. Once assembled, or partially assembled at a factory, the units need to be moved to the construction site. As these are frequently bulky and somewhat fragile objects to move, both cost and the need to overcome obstructions can make this part of the process difficult. There are, however, some unique solutions available.

The flying factories of Slough

While prefab construction is usually thought of as taking place in a factory, with the components transported to the construction site, modern techniques are altering this relationship. For example, Skansa has developed what it calls "flying factories" in the UK. These make use of short-term factory space rental in close proximity to the building site, eliminating much of the cost of transportation, and making a direct contribution to the local economy where the construction will take place.

>http://hnn.bz/Battersea-Power-Station.jpg}Battersea Power Station redevelopment}http://www.increation.co.uk/blog/london-talk-the-battersea-power-station-a-history-of-redevelopment-plans

One such development is described in an article entitled "Skanska's 'flying factories' take off in Slough", which appeared in the Construction Manager in October 2015. The situation the flying factories attempt to remedy is described in the article:

Skansa realised that three major barriers remain for widespread adoption of offsite manufacturing: the large amount of initial capital investment required; the high transport costs associated with delivery; and the financial instability of offsite manufacturers. Both Skanska and Innovate UK believe the temporary nature of the modern flying factory, along with the flexibility it affords, offers the solution to all three of these problems.

This is a pilot project, which will fabricate fully serviced "utility cupboards for flats in Phase1 at Battersea Power Station. The units use a steel-frame, and contain most of the mechanical, electrical and plumbing (MEP) components for each flat. The targets for the project have been quite ambitious, seeking improvements in both costs and quality.

The target for the project was to combine the benefits of offsite with virtual-reality-enabled supply chain management and process improvement, to achieve a 28% reduction in cost compared to typical manufacture, and 30% shorter programmes, providing a higher-quality and more predictable build cost.

...

Installing this amount of MEP onsite would take at least two weeks, meaning that Skanska expects to see a saving of 50% in labour costs along with an increase in speed of delivery by 50%. Quality has also been increased, with early reports indicating a reduction of first-round process defects by more than 50%.

By using the "flying factory" concept, Skansa has also been able to reduce risk. While the short-term lease on warehouse space in Slough to house the factory operations is more expensive than a longer-term arrangement, it also means there are reduced commitments once the work is completed.

Take the factory to the house

Facit Homes, based in London, England, has developed an onsite digital fabrication system that eliminates the need to transport finished components. The company begins a project by building a three-dimensional computer design of the proposed building. It then delivers a self-contained CNC system housed in a shipping container to the construction site. The CNC router is capable of milling every component of the home. These consist of modular elements which snap together in a way not unlike the Lego toy system to make up the elements of the building.

>http://hnn.bz/facitFactoryInABox.jpg}Facit's use of a shipping container}http://www.architectureanddesign.com.au/news/revolution-for-prefab-homes-moving-digital-fabrica

The main construction material is spruce plywood, which is used to construct what Facit calls the house's "chassis". Due to its lightweight nature, the houses do not need complex concrete footings for their foundations, instead relying on steel helical micro piles. Assembly can be performed by just two people.

The opportunity

The developing prefab market clearly illustrates one of the coming trends in industrial tools everywhere: integration with computer-based systems. While there will continue to be an ongoing demand for standard tools in construction, the manufacturing-based prefab construction will see more widespread use of CNC and similar machinery.

Fortunately, Australia has a rich history of developing high-quality CNC router products. For example, Multicam, with offices in New South Wales, Victoria and Queensland, has built a good reputation over the years for both sales and service of its units. Advanced Robotic Technology (ART) is also well-known for both its wood and metal CNC routers.

Sources

US home improvement retail researchers The Farnsworth Group have released a study that indicates big-box retailers are losing market share in some areas to speciality outlets.

The study analysed results from a wide range of channels for purchasing home improvement goods, and examined the motivations and drivers of several audiences.

The surprising conclusion was that specialty stores were gaining market share in some specific market demographics. In the 44 to 54 year-old group, 44% of homeowners used specialty stores instead of big-box stores in shopping for their flooring needs.

For the younger generation, aged between 18 and 34 years, specialty paint stores were ranked more highly than for older generations. An analysis of this data by US market communications agency Wray Ward indicates that in the case of paint, younger consumers are less driven by price considerations and more by quality concerns.

The company sees many US paint brands responding to this by providing tools such as mobile apps to make the paint shopping experience more accessible and engaging.

On the other hand, speciality areas such as flooring, report that they continue to lose sales to big box retailers. Some of these speciality stores are, as a result, resorting to big-box style tactics to maintain market share in recent years.

Floor & Decor, for example, based in the US state of Georgia, would buy large lots of flooring to obtain better prices, then sell directly from those lots. This is quite different from the standard practice of buying samples, then ordering on demand.

Floor & Decor say that having demonstrated demand, they now have better relationships with suppliers. They go direct to those suppliers, but can order smaller lots, and thus keep more products consistently in stock.

Seeking deals

While paint may be a slight exception, the data from Farnsworth indicate that consumers of all ages are heavily motivated by finding great deals.

Younger consumers rely on online shopping to find deals, with an increasing reliance on social media to help them find the best offer. Older US consumers continue to rely on newspaper coupons and catalogues delivered to their mailboxes. However, an increasing focus on online shopping is common across most age groups the study indicates.

Professionals shop online

Not only consumers, but US professionals - tradies - have also come to rely more on online services to guide their purchases. Nonetheless, professionals still rank good customer service from knowledgeable employees as a key driver to where they choose to buy their supplies and tools.

Amazon threatens

One major source of market loss is the comprehensive online retailer Amazon. Both consumers and professionals nominate Amazon as a major source of purchases. This follows from ongoing efforts by Amazon to make its DIY offer compelling.

For example, the top best selling offer in power hammer drills for Amazon is a 18-volt Li-ion cordless hammer drill, complete with battery and charger for US$99. The DeWalt DC970K-2 18-Volt Compact Drill/Driver Kit is on sale for US$89 and is its top selling power drill driver.

Gaining back share

In August 2015 the underperforming US big box retailer Sears began pursuing a different approach to the home improvement market.

The Australian market for the so-called "Internet of Things", or connected home devices, is tipped to grow by almost 11 times in the next four years. It is expected to be worth $3.2 billion in 2019, according to new research from Telsyte.

It predicted that by 2019, the average household will contain 24 internet-connected devices, compared to an average of nine in 2015. This will be boosted by the widespread adoption of long-anticipated ideas such as internet-connected fridges, smart home security systems and sensor-driven smart energy systems in homes.

In its report Telsyte said a commitment by Samsung to connect 90% of its new products to the internet by 2017 and all of them by 2020, is an indication that even non-tech savvy consumers would become more connected by default.

It said companies not traditionally in the technology market, from Ikea to Breville, are starting to unveil their internet of things plans.

Teslyte analyst Steven Noble told the Australian Financial Review that Australian consumers were likely to be early adopters of connected home products, and that it was becoming easier for everyday users to connect their homes. He said:

Until recently, a smart home automation system could be quite complex to design, install and use. However, the new generation of devices and services have emphasised simplicity.

For example, Google's smart thermostat, Nest is simply a dial. It doesn't get simpler than that. Of course consumers will still have things to learn, but you can expect the smart devices in their home to actively teach them about home automation too. For example, you should expect devices like the Apple TV to detect new smart appliances that are brought into the home, and to offer to help set them up.

The design of small spaces is gaining more currency in Australia as escalating property prices cause more people to consider cutting down on the number of square metres they need to live in.

There is a long European tradition of fitting more into less, but it is one which in recent years has received an additional boost from new technologies, new materials, and an interior design sensibility that makes it "OK" to mix and match different modernist styles.

It is also a fertile ground for blogs and design sites. Here are a few that cover this area in interesting ways.

Dezeen

The website of the magazine of the same name, Dezeen follows a slightly quirky, future-centric vision of architecture and design. It is one of the rare publications in the interior/exterior design area that does not confuse big budget with good design, and frequently features clever, inexpensive means of bringing great design to small spaces.

Milan dental studio converted into compact two-storey apartment

This item covers the conversion of a dental office into a 60sqm apartment. This is a very interesting article, as it illustrates many of the techniques that can be used to make a small apartment more liveable and intimate rather than restricted.

The kitchen is a virtual playbook of the kinds of architectural moves that can be made to made a small, multi-functional kitchen that is both stylish and functional.

>http://hnn.bz/Tiny-Milan-Apartment-kitchen.jpg}Kitchen in Milan apartment}http://hnn.bz/Tiny-Milan-Apartment-kitchen.jpg

The compact, L-shaped design makes good use of the space, and notice the offset of the sink to the left to leave the window space more open. The cabinetry is designed to combined closed and open shelves for different uses. The simple table can serve both as dining area and additional food prep space if required.

Tokyo house by YUUA Architects

At the extreme end of small spaces is this building in Japan, where all the rooms are limited to just 1.8 metres in width.

The building makes extensive use of split-levels, eliminating the need to define formal rooms, and giving a sense of less bound space.

>http://static.dezeen.com/uploads/2015/08/1-8-metre-wide-house-by-YUUA-Architects-and-Associates_dezeen_468_7.jpg}Multiple views through different spaces}http://static.dezeen.com/uploads/2015/08/1-8-metre-wide-house-by-YUUA-Architects-and-Associates_dezeen_468_7.jpg

Cate St Hill

Ms St Hill is a London-based blogger who works as a journalist in the design field. Her choices are a little less frenetic than Dezeen's, but offer a quirky insight into urban design.

Malmo shop/apartment

Using something of the same design choices as in the Milan apartment, this converted Scandinavian shop manages to produce quite a different feel.

The kitchen uses the same L-shaped counter design, with a dining table instead of an island, but its style is quite distinctive.

>http://catesthill.com/wp-content/uploads/2015/08/catesthill-i-wish-i-lived-here-12.jpg}Kitchen in Malmo dwelling}http://catesthill.com/wp-content/uploads/2015/08/catesthill-i-wish-i-lived-here-12.jpg

There is more space, of course. The square table is complemented with mismatched chairs, the storage is entirely concealed in one pantry area, and floor to ceiling windows provide light, a pleasant vista, and a seating/lounging area.

>http://catesthill.com/wp-content/uploads/2015/08/catesthill-i-wish-i-lived-here-1.jpg}Malmo dwelling window lounge area}http://catesthill.com/wp-content/uploads/2015/08/catesthill-i-wish-i-lived-here-1.jpg

Living in a shoebox

Dedicated to all things about "living small", this blog offers everything from product reviews to an eclectic collection of forms of recreational small living such as micro-caravans.

Stockholm studio apartment

The trick to one-room living is finding ways to integrate different multi-function areas. This apartment manages to do this without having the functional entirely overwhelm the aesthetic.

One way to do this is to clearly define the purpose of each area inside the apartment.

>http://hnn.bz/swedish-apartment.jpg}Spaces in Stockholm apartment}http://hnn.bz/swedish-apartment.jpg

It is very clear in this image where the sleeping, study/working and lounging areas are located. Note the clever wall mounting of the television, and the way the vertical and horizontal white struts tie together the chairs, the radiator and the ladder leading to the bed.

UK retail specialist publication Retail Week recently teamed up with BirdSong Analytics to profile the way in which the UK's top retailers make use of social media. The companies profiled included fashion brands such as H&M, online retailer Amazon, supermarkets including Tesco, Aldi and Lidl, and home improvement retailer Homebase.

The study can be viewed at the following link:

The survey

Retail Week estimates that the value of global social commerce will be around US$30 billion in calendar 2015. The star performer for use of social media was fast-fashion retailer H&M. However, grocers Tesco, Aldi and Asda showed high performance as well. Automotive and outdoor retailer Halfords also performed well in terms of making its social media count.

Twitter

The overall conclusion from the survey is that while UK retailers are making considerable use of social media, they are missing opportunities.

The following chart illustrates the number of followers major UK retail brands have:

>http://hnn.bz/retailWeekTwitterFollowers.png}Twitter followers of major UK retail brands}http://hnn.bz/retailWeekTwitterFollowers.png

HNN has compiled a similar chart for a few of Australia's major retailers:

>http://hnn.bz/AusRetailersTwitterFollowers.png}Twitter followers of major Australian retail brands}http://hnn.bz/AusRetailersTwitterFollowers.png

It's worth noting that the Woolworths' Twitter account shows no tweets. Big W last tweeted in August 2011, Bunnings last tweeted in February 2012 (the account's only tweet), and Masters Home Improvement last tweeted on 10 July 2015. All the other accounts show tweets during August 2015.

Analysis by Retail Week indicates that most of the tweeting activity by the UK retailers is used as a customer response mechanism. Some 59% of the tweets are replies, 37% are retweets, which means only 4% are "proactive" tweets.

Retail Week also notes that most of the tweets are made on weekdays during office hours. The survey makes the point that interacting with users when they are actually shopping, after-hours and on weekends, might be a more effective strategy.

Facebook

In terms of engagement rates, Homebase rates surprisingly high in its group, which is for brands with between 100,000 and 500,000 fans (Homebase has 236,000 fans). The survey indicates it has an engagement rate of 3.71%, beating companies such as Selfridges. In terms of pure engagement across all fan size categories, only Very.co.uk (online fashion site) and Poundland have a higher rate.

As with Twitter, the survey suggests that most Facebook posts are made at times when they will have diminished effect.

The survey also indicates that, in terms of likes and shares, videos attract the largest audiences:

>http://hnn.bz/RetailWeekFacebookInteraction.jpg}Facebook interactions based on post type}http://hnn.bz/RetailWeekFacebookInteraction.jpg

Pinterest and home improvement

The Retail Week survey did not cover Pinterest. Pinterest recently published an interesting account of how the US home improvement "guru", Bob Vila, has made use of Pinterest to help drive traffic to his website, BobVila.com.

Pinterest is a site where users create "boards" to which they "pin" images. While it helps to have a home board, the strategy that works best for brands is to pin images to commonly-shared boards.

According to the Pinterest article, BobVila.com used a range of analytics tools provided by Pinterest to help boost its referral rates from the social media site. The website quickly discovered that simply posting pictures of completed DIY projects did not work. What did work was publishing "how-to" tips, complete with picture and image.

The Pinterest article provides as an example two images, one with helpful text, and one without:

>http://hnn.bz/bobVilaTest1.jpg}The test image without text}http://hnn.bz/bobVilaTest1.jpg

>http://hnn.bz/bobVilaTest2.jpg}The test image with text}http://hnn.bz/bobVilaTest2.jpg

The image with the text delivered 150 times the results of the image without text.

The company uses a testing system to develop its Pinterest content. It begins by posting the newest and most relevant content, then checks to see what is garnering the best response, and uses that information to help build more content.

Pinterest also provides a scheduling tool named "Tailwind" to help make sure that posts are made at the best possible times.

The following link is to an example of one of the pinboards developed by Bob Vila:

Dwell magazine is in many ways a typical California lifestyle magazine. Its quality tends to wander around a bit, and while it sometimes has good articles, there are entire issues that lack real substance.

While the website is just as hit-and-miss, the web format makes it easier to sort the less good from the better. Recently it has featured a number of interesting designs that are worth considering.

Petite Paris Apartment

The designing class in France, especially Paris, frequently has an endearing modesty in the dwelling they choose. This is certainly the case for Nicolas Roche, who is creative director at his family's company, the legendary maker of high-end furniture Roche Bobois.

He lives in a small, 85 square metre apartment in a Paris suburb that features a number of small parks. With his living area spread out over the top two floors - and a guest room in the attic - he has found creative ways to make great use of space and yet retain a playful elegance.

One of the prime examples of this is the coat wardrobe featured in the photograph below. Not wanting something that blocked out the room, he used red bungee cords to define a half-space, which he sometimes decorates with photographs and postcards as well.

>http://hnn.bz/dwellParisFlat.jpg}The main room of the flat}http://hnn.bz/dwellParisFlat.jpg

While one of his first acts on buying the flat was to tear out most of the walls to provide completely open spaces, Mr Roche is able to easily define individual spaces within the flat.

http://hnn.bz/dwellParisFlat2.jpg}The grouping of furniture and objects defines the space}http://hnn.bz/dwellParisFlat2.jpg

Small kitchen hacks

While most of us have learned to be a bit cautious about those picture carrousels that promise "10 best ways to buy a table" and so forth, the Dwell equivalent can actually be interesting - not always, but sometimes.

For example, a recent gallery has the somewhat unpromising (for the Internet weary) title of "8 Space-Saving Hacks for Small Kitchens", and turns out to be about, well, space saving ideas for kitchens.

That's not to say that every picture is relevant to the announced topic, but several - if not in fact many - of them are. For example:

>http://hnn.bz/dwell-space-saving-kitchen-1.jpg}A cute kitchen in Bratislavia}http://hnn.bz/dwell-space-saving-kitchen-1.jpg

At the heart of this kitchen is an actual IKEA sink cabinet, which the architect-owner of this apartment (in Bratislavia) has altered with its bright aqua fascia, and the use of cut outs instead of pulls for the cabinet door and drawers.

More details about this kitchen can be found at:

Another interesting picture in this series uses salvaged Douglas fir beams combined with IKEA drawers to create a unique and very warm-feeling kitchen island:

>http://hnn.bz/dwell-space-saving-kitchen-2.jpg}A brownstone in Brooklyn makes itself eco-conscious and cosy}http://hnn.bz/dwell-space-saving-kitchen-2.jpg

More details about this kitchen can be found at:

Finally, there is this kitchen, which combines two great trends to create a very welcoming space in tight confines. The use of the dark-featured cabinetry extended to the ceiling makes this into something of a nook.

The use of the small table with compact seating instead of a kitchen island adds versatility: it can be used for an informal meal, or as a prep area. The backsplash on the wall behind the stove is actually PVC rubber flooring with specially designed steel "plus" signs embedded.

>http://hnn.bz/dwell-space-saving-kitchen-3.jpg}Suburban doesn't have to be boring: a simple small kitchen of great charm}http://hnn.bz/dwell-space-saving-kitchen-3.jpg

More details on this kitchen can be found at:

It has been some time since HNN has provided a guide to interesting trends in home design magazines. That has not been through want of trying.

Unfortunately, most home design publications seem to be going through one of the temporary seizures that afflict them from time to time. What we are seeing for the most part are quite average rooms filled with less average "things".

The magazines themselves are experiencing new pressures. In terms of their print circulations, the most recent figures from Roy Morgan for June 2015 indicate mixed results.

The two magazines that have slipped the most are Inside Out, which lost 20% of its circulation over the previous corresponding period (pcp), which is June 2014. Its June circulation was 129,000. Real Living also slipped by 10.7% over the pcp, to fall to 133,000. House & Garden fell by 3.0% to 612,000.

The only two magazines to show significant gains were Home Beautiful, which climbed 7.4% to 421,000, and Vogue Living, up by 18.5% to 141,000. Homes+, launched in October 2014, recorded a respectable 85,000 for its first June publication numbers.

The major magazine in the home design category, Better Homes and Gardens, remained essentially flat on 1,820,000, up 0.1%. However, its digital readership fell sharply, down by 25%.

In fact, digital remains the key difficulty of most print publications. Less than half of the magazines which list print circulations list digital readership. Of these, the two standout performers are Time magazine, which recorded a 26% increase in digital readership, and Reader's Digest, which had a more modest gain of 5%.

It is notable that the ideas that are gradually transforming the communication of design ideas, such as Houzz, Pinterest, and Porch, did not originate with publishing houses. Nor have print to digital publications really managed to harness the liveliness and contact that home design blogs offer.

Instead, home design magazines still regard themselves as the repositories of knowledge about style, fashion, elegance and so forth. The net effect of this is that for many potential readers, they seem less than relevant to the decisions they need to make.

Home NZ, June-July 2015

One partial exception that HNN has recently found is Home NZ magazine, which comes - as you would expect - from New Zealand.

Two articles were especially appealing. The first, "Land's End", details the restoration of a shepherd's cottage on Canterbury's Banks Peninsula by architect Andrew Patterson. The excellent photography is by Simon Devitt.

A kitchen

>http://hnn.bz/homeNZJuly-p87_s.png}Home NZ June-July 2014, p87}http://hnn.bz/homeNZJuly-p87.png

A lounge

>http://hnn.bz/homeNZJuly-p89_s.png}Home NZ June-July 2014, p89}http://hnn.bz/homeNZJuly-p89.png

A nook

>http://hnn.bz/homeNZJuly-p90_s.png}Home NZ June-July 2014, p90}http://hnn.bz/homeNZJuly-p90.png

If we were to think about what is being presented here, by the architect, the owner, the photographer, and the editor, it is a series of offered "moments" in this little house. These are not rooms and situations we look at, they are places we would like to sit in.

The other image from the magazine that caught our attention is from a very different source, a loft conversion in New York's TriBeCa areas.

>http://hnn.bz/homeNZJuly-p116_s.png}Home NZ June-July 2014, p119}http://hnn.bz/homeNZJuly-p116.png

In its stark simplicity, what this image shows is signs of what HNN believes will be an emerging theme over the next two or three years. We've seen hotels greatly influence bathrooms in private homes, and from that, we believe, kitchens as well.

HNN sees a trend where the design of hotel rooms will begin to influence bedroom design more, particularly as people transform these into more multifunctional spaces. This room, with its inbuilt, linear desk, echoes the design of many hotel spaces, but the effect, instead of being cold and impersonal, is quite welcoming.

Looking at the design of hotels can be a somewhat mixed experience. At one time, it is the kind of architectural palette that permits a certain freedom to experiment. At the same time, what works in temporary accommodation is often a poor guide to what needs to work day after day, year after year as a place to live in.

That said, there are some really interesting design features to this hotel located in London's Fitzrovia district. In particular, it offers a suggestion of ways in which to achieve a coherence in design that is frequently lacking from dwelling spaces today. Take, for example, this living/dining room combination:

>http://estmagazine.com.au/wp-content/uploads/2014/10/Est-Magazine-London-Edition-01.jpg}London Edition Hotel}http://estmagazine.com.au/wp-content/uploads/2014/10/Est-Magazine-London-Edition-01.jpg

There is a restrained palette of colours in use here, and the dark wood on the walls and the floors, which could be overwhelming but instead seems enclosing and comforting.

A similar effect is achieved in one of the bedrooms, though here the lightness of the wood makes it seem somehow fresh-cut, and there is a sense of things finely seamed instead:

>http://estmagazine.com.au/wp-content/uploads/2015/02/Est-Magazine-Edition-Hotel-Room1.jpg}Bedroom in the Edition Hotel}http://estmagazine.com.au/wp-content/uploads/2015/02/Est-Magazine-Edition-Hotel-Room1.jpg

This room is in many ways a fusion of the light and the dark, something of a miniaturist living space. This does also point, however, to one of the emerging trends in house design, where rooms are becoming increasingly multi-functional, with bedrooms reverting to their origins as quite public rooms.

>http://estmagazine.com.au/wp-content/uploads/2014/10/Est-Magazine-London-Edition-feature-Image.png}A bed/sitting room}http://estmagazine.com.au/wp-content/uploads/2014/10/Est-Magazine-London-Edition-feature-Image.png

Lock brand Schlage has announced the findings of a US survey revealing that style and design upgrades - such as door hardware - are a major component for homeowners completing a DIY project. Steve Down, Allegion residential leader said:

As decor and design trends change, Schlage recognises that consumers are always looking for new ways to express themselves through their home's unique style without sacrificing quality. It's the smaller details and finishing touches that bring a home's style together...

The survey, conducted by third-party research firm Kelton Global, polled a nationally representative sample of more than 1,000 American homeowners ages 25 and older. It revealed that homeowners are in the market for doors and door hardware that bridge style and tradition as well as complement their personal taste. Findings include:

Survey methodology

This survey was conducted online within the United States by Kelton Global on behalf of Schlage from May 5-12, 2015, among 1,059 adults ages 25 and older. Results of any sample are subject to sampling variation; in this particular study, the survey results may vary by plus or minus three percentage points.

Schlage is part of the Allegion group of companies. It remains committed to shifting consumer perception of door hardware and bringing it to the forefront as an accessory that can complete or enhance the look of any room.

Roy Morgan data shows that as of March 2015, 53% of Australian households have power tools in them, virtually unchanged since the same time in 2010.

Lawnmower ownership has declined slightly over the last five years (from 62% to 60%), as has the proportion of Aussie households with a whipper-snipper/brush-cutter/line-trimmer (from 51% to 48%).

Chainsaw ownership, on the other hand, has grown: 27% of households now have a chainsaw, up from 24% in 2010.

Ownership of hardware/gardening products in Australia: 2011 vs 2015

>https://c1.staticflickr.com/1/546/18730785829_09c2d81178.jpg}Hardware and gardening products ownership}https://c1.staticflickr.com/1/546/18730785829_09c2d81178.jpg

Source: Roy Morgan Single Source (Australia), April 2010 - March 2011 (n=18,263) and April 2014 - March 2015 (n=15,913). NB: Whipper-snippers denotes Whipper-snippers, brush-cutters and line-trimmers.

Whether there are power tools, chainsaws and/or garden gear in a household depends very much on the living arrangements of its inhabitants.

People living with their partner are most likely to have these items at home. Couples with no children have the highest ownership of power tools (66%) and chainsaws (37%), while couples with kids are more likely than others to own lawnmowers (72%) and whipper-snippers (60%).

Ownership rates fall among Aussies who live alone or as single parents, although there is a huge disparity between the genders.

For example, single-father households are much more likely than single-mother households to contain power tools (61% vs 30%), chainsaws (22% vs 10%), lawnmowers (66% vs 55%) and whipper-snippers (55% vs 36%). Likewise, men who live alone are more likely than women to own these items. Angela Smith, group account director at Roy Morgan Research, said:

The Australian market for garden/hardware items is large and diverse, as the findings indicate. The slight overall decline in ownership of these items is consistent with a slight drop in the proportion of separate houses (from 83% to 81%) and a corresponding increase in smaller residences such as flats, villas, units and terrace homes (from 16% to 18%) with smaller-scale maintenance and renovation requirements.

However, savvy retailers and manufacturers of these items know that even as the size of some households is decreasing, there are other household types where the need for such products is only too apparent: such as those headed by single mothers or solo women. Reaching these groups would require a rethink of the male-focused marketing traditionally employed in this field...

Millennial homeowners in the US were just as likely to renovate their homes as other age groups in 2014, according to the fourth annual Houzz & Home survey, with more than 170,000 respondents in the US among the 260,000 respondents globally.

The survey received more than 15,000 US Millennial homeowner responses (ages 25-34). It revealed that a key motivation for renovation projects among Millennial homeowners is making a newly purchased home their own (55%), with one-third purchasing a new home in 2014 alone. Nino Sitchinava, principal economist at Houzz said:

While still a small group, Millennial homeowners are just as active as older generations when it comes to renovating and decorating. Because of delayed homeownership, we have historically known very little about their preferences when it comes to their home updates. However our unprecedented data show that Millennial views on resale value, energy efficiency, healthy homes, and other factors are similar to those of older generations.

Kitchens continue to be the most popular interior renovation project among all age groups, with nearly one-third of homeowners tackling this room in 2014. Millennial homeowners, who were just as likely to renovate their kitchens as other homeowners, spent an average of US$26,300 on major remodels of a large kitchen (more than 201 square feet), and US$16,100 for major renovations of a small kitchen (less than 201 square feet).

(In this survey, a major remodel at a minimum replaces all cabinetry and appliances. Additions are not included in these numbers. Numbers do include both DIY projects and those which used design or construction professionals.)

By comparison, younger Baby Boomers spent an average of US$45,200 on major remodels of a large kitchen and US$38,700 for major renovations of a small kitchen. When it comes to minor kitchen remodels, Millennials spent US$5,100 on average for a small kitchen and US$7,500 for a large kitchen.

Eighty-four per cent of all homeowners hired a professional to help with their renovation projects; nearly half of those used a general contractor (44%). Homeowners were also likely to hire landscape contractors (19%), interior designers (12%), architects and landscape architects/designers (10% each).

Nearly half (48%) of those surveyed who hired a professional leveraged a specialty service provider such as an electrician (18%), plumber (17%) or painter (15%) directly, without the help of a general contractor.

Additional US findings from Houzz

Challenges

When it comes to the challenges all homeowners face during renovations, finding products and professionals top the list (both at 33%). However, staying on budget is the biggest challenge for Millennials (38% versus 29% for younger Baby Boomers).

Millennials are also nearly twice as likely to struggle with funding their renovation projects as younger Baby Boomers (37% versus 19%, respectively).

Financing

Cash remains king -- all generations leveraged savings or personal finances to pay for their home upgrades (87%). One in three Millennials charged renovation expenses to a credit card (32%), versus 25% for other generations.

Aging in place

Over half (56%) of 60+ households plan to stay in their homes indefinitely, with many renovating their homes for this purpose. Of the 60+ households renovating their kitchens, 60% are improving accessibility.

Similarly, 69% of the 60+ homeowners renovating their bathroom are updating with aging in mind, including installing raised toilets (38%) and grab bars (26%).

Smart technology

Twenty five per cent of renovating homeowners rank smart home tech as a very-to-extremely important consideration for recent renovations. One in four installed home automation systems as part of a renovation in 2014.

Healthy home

Homeowners are divided on the importance of addressing and preventing health concerns in 2014 renovations. While two in five of US homeowners rate health concerns as very-to-extremely important, one in five rate them as entirely unimportant. Addressing health concerns during renovations becomes less important as household income increases.

The annual Houzz & Home survey covers a wide range of renovation projects in 2014. Data gathered includes historical and planned spends, professional involvement, motivations and challenges behind building, renovation and decorating projects, as well as planned activities for 2015.

The 2015 study provides insights into the home improvement activity of the more than 30 million monthly unique users of the Houzz site and mobile apps.

The Houzz & Home Survey was sent to registered users of Houzz and fielded in February-April 2015. The Farnsworth Group, an independent market research firm, conducted the survey. The full report is available at at:

Houzz & Home survey data for Canada, UK, Australia, Germany and France will be released in the coming months.

The home renovation market should enjoy a modest recovery over the next few years, but that will follow another decline in 2015, according to the Housing Industry Association (HIA). It rose by a meagre 0.8% in 2014.

The popularity of television shows that focus on home renovations, such as Channel Nine's The Block and Channel Seven's House Rules, has not translated into recovery in the home renovations market. HIA senior economist Shane Garrett told the Australian Financial Review:

People think these shows are making a difference, making home renovations more fashionable and more glamorous, and that it has an effect on the home renovations market. But if you look at the figures it's a fairly small proportion of people who do it themselves. The majority of it is done by professional builders.

HIA's latest renovations report forecasts an 8.2% lift in renovations activity between 2015 and 2018, due to continued low interest rates, a recovery in economic activity and an increased number of detached houses at prime renovations age.

But it expects a 2.8% drop in 2015, with activity weighed down by a weak labour market, below trend economic growth and decelerating home price growth.

The renovations market - valued at $29.7 billion in 2014 - accounts for more than one third of all residential construction activity, compared to almost half in 2009/10. Garrett said:

Big ticket expenditure items like home renovation jobs tend to suffer disproportionately at times when economic growth is slow and when unemployment is drifting upwards. The deceleration of wages growth to its lowest rate in almost two decades has also challenged the renovations sector.

Spending on renovations

Female tradies are beginning to make their mark in the home renovation market - despite their minority status.

Stacey Head, a home renovator, created the She Wear range after stepping on a nail in inappropriate footwear. Head was unimpressed with the male-focused safety gear on the market, so she created her own range of bright and feminine, yet protective and hardy, work boots.

The boots have been a hit, with women in a wide range of industries kicking off their conventional brown steel-caps in favour of the fashionable She Wear boots.

The instant popularity of She Wear indicates a growing demand for workwear that is more suitable for women. Eve Renovations and Workwear is also enjoying the growth in demand for female safety wear.

Founders Juanita Mottram, an apprentice carpenter, and Laura Madden, a tiler, carpenter and builder, believe female tradespeople have a unique advantage in the market. Mottram says:

There seemed to be an opportunity in the market just to do things differently. Tradies quite often get such a reputation for not turning up, not being clean, not finishing jobs on time.

The pair hoped to not only prosper, but act as role models for other young women who wanted to take a similar path. They specialise in bathroom, kitchen and laundry renovations. At any one time, they employ up to 20 subcontractors of both sexes, including a female tiler, electrician and painter.

Helen Yost, a plumber and founder of The Plumbettes, says some groups in the community, such as single mothers and the elderly, feel more secure with a female trade professional.

They just don't feel comfortable with a male coming in. They may feel intimidated, or that they're getting the wrong advice. They all love the fact that we clean up after ourselves. Generally, tradies are renowned for the mess they leave behind.

As of September 2014, 9.6% of Australian trades and technical workers were women, compared to approximately 5% in 2010. More female tradies, and the influence they have on some product ranges, could have implications for hardware retailers.

According to Roy Morgan Research, Masters and Bunnings are the favoured retailers among female consumers. Masters' customer base for the year ended September 2014 was 47.6% female, while 46.8% of Bunnings customers were women.

During the same period, Mitre 10 and True Value Hardware received the most visits from professional tradespeople (8.5% and 10.7% respectively). Retailers more inclined to appeal to professional trades will perhaps be the most affected by the rise in female tradies.

To read more about where ladies and tradies are shopping, go to HNN's story here:

Next generation of "lady tradies"

The number of "lady tradies" has also increased from the perspective of education and training. Northern Sydney Institute faculty manager Pat Vella told the Daily Telegraph:

Women are recognising the benefits of learning a trade. The opportunities are endless, particularly in construction, engineering and mining. They can earn higher salaries sooner and are uniquely placed to run their own business.

For Karla Hayward, who is finishing her Certificate 4 in Carpentry and Construction, learning a trade was her only option. She said:

My parents built our house so it's always been a dream of mine to build one of my own...I love it too. I'm a very practical person so seeing the finished product and being able to say 'I made that' is really rewarding.

Hayward said being the only female in her course was something she - and the rest of her class - had to get used to. She said:

But it didn't take long for us all to realise how similar we were. I do feel as though I try a lot harder because I think I need to prove myself but that's just not true, it's just something I feel. Once they have seen my work, they say I'm just like any other carpenter.

Ruth Wilson's path to the tradie realm was less direct. She explains:

I finished a Bachelor of Legal and Justice studies, which I loved, and ended up travelling for two years. When I came back though, it just wasn't appealing to me, which was really hard.

I spent a lot of time thinking about what I wanted to do and every single element of becoming an electrician appealed. The hours are great, you don't have to sit behind a desk all day and it's a great challenge.

When Wilson tells people what she does for a living, she is often met by surprised faces. She said:

That fact it is a male-dominated trade was something I considered but it was in no way going to stop me from having a go. I prepared myself for negative responses but I've never got one.

Story by Robyn Williams

The Victorian chapter of the Master Builders Association has a Building Leadership Simulation Centre in Port Melbourne. And its general manager Marc Lyons is adamant that Building Information Modelling (BIM) is the future.

The centre uses large-scale BIM models such as a 24-storey office and two residential homes as part of its training.

Digital technology lies at the heart of BIM, where a building is digitally designed from the ground up in 3D. The traditional 2D drawings are transformed into 3D representative models.

All the players in a project -- contractors and designers, architects and engineers -- use one data platform, the same 3D design.

Architect Jason Howden is the technical BIM manager at Warren and Mahoney, which has about 200 employees in Australia and New Zealand. He is using BIM in the reconstruction of earthquake-hit Christchurch.

Howden said BIM technology was quite advanced but the process -- using the technology -- was not as advanced. He told Fairfax Media:

Everyone in design and construction is trying to get their head around the technology. For large companies, the process takes time. Smaller firms can adapt more quickly.

Howden said, basically, BIM was a "big boys' Lego set". The various parts are manufactured separately and put together on-site.

This approach encourages prefabrication. With certainty about how the building is going to fit together, complex parts of the building can be made in a factory, then transported to the site where they are put together.

Howden said BIM also had implications for workplace safety, as working in unsafe places -- such as scaffolding or at the top of rafters -- became a thing of the past.

Melbourne architectural practice Hayball pioneered the use of BIM locally, introducing the technology in 2005. Hayball director Tom Jordan said:

We haven't looked back since. It immediately demonstrated its usefulness and its economy, particularly on large-scale projects.

Lyons said BIM was mostly a design tool for architects at present but was used less by builders. But this is mainly because the clients are not demanding it. He said:

Builders are adapting it but still have to wear the cost themselves.

In other countries, such as Britain and Singapore, the demand for BIM was more client-driven. There, clients received the 3D model of the building once the project was completed and used it for management and upgrades. Lyons said:

This is the full BIM life cycle.

Howden said the use of BIM generated 10 to 30% efficiency gains compared with traditional building methods. He said:

But it's a question of how you use the efficiency gain. You can gain time, but that extra efficiency can be used in other ways, such as taking longer to do the design work. It's hard to see the actual cost.

Australian architectural firm i2C has joined forces with British company Ryder Architecture, which owns half of the BIM Academy in Britain with Northumbria University. This will bring BIM Academy's skills to Australia's shores.

One of the hidden aspects of the current strength in the housing/home improvement market is that the competition in interior design magazines has also grown more intense.

A sign of the times is that after eight years as editor-in-chief, Neale Whitaker (also a judge on reality TV show The Block) has left Belle magazine to become editor at Vogue Living.

Meanwhile at Belle, its former managing editor Tanya Buchanan has stepped into the role of editor-in-chief. The current April 2015 issue of Belle is her first outing in the senior role.

Ms Buchanan has made some interesting changes. While the overall design of the magazine remains somewhat fussy, the photography has taken a step in the right direction, with a much better use of double-page spreads.

This is a good example, for the living room of a New York residence:

>http://hnn.bz/Belle-1504-107-lr_small.jpg}Belle magazine, April 2015, pp. 106-7}http://hnn.bz/Belle-1504-107-lr.jpg

It's a grand room, with big dimensions, and the two-page treatment is needed to do it justice. While this is a very high-end renovation, it's interesting to note how it nonetheless conforms to certain trends that are becoming stronger in 2015: the grey/white wall palette, the mid-century furniture, and the use of a single big block of colour -- the blue couch at the end of the room -- to give the space weight and definition.

From the same residence, the dining room:

>http://hnn.bz/Belle-1504-111-dining_small.jpg}Belle magazine, April 2015, pp.110-111}http://hnn.bz/Belle-1504-111-dining.jpg

This is an excellent photograph. It takes some effort to get the exposure just right so that the detail in the wood panelling of the walls, and the small tile-work of the floor are evident.

Here, again, certain trends are confirmed: the white palette, the use of an early sixties reference in the "tulip" chairs, and the addition of break-away, "rough" elements in the chairs at the head of the table.

From a different house, this one located in Sydney's North Shore, a kitchen:

>http://hnn.bz/Belle-1504-119-kit_small.jpg}Kitchen in Sydney}http://hnn.bz/Belle-1504-119-kit.jpg

Another good photograph, and this one captures - again - that sense of the kitchen as the new living-room. There are many nice touches here, such as the simple kitchen counter stools, the understated appliances, and the cool linear look of the open shelving.

It is the alcove, however, that is the real star, in the end. Using the banquet and pillows gives the space the real "living-room" feel, and takes away from the harshness of just a kitchen table. It is so evidently a family place, rather than a show piece.

Australian House & Garden remains something of an enigma among interior design magazines. Part of the Bauer Media Group's stable of interior design magazines, made up of Homes+, Real Living, and Belle, its market position is meant to be somewhere in-between the youthful vibrancy of Real Living, and the "global style journey" (as it describes itself) of Belle.

It boasts a 66 year "heritage" (Belle by contrast has a 40-year "iconic" history), and claims a very high pass-along rate. The actual circulation is 114,000, but the readership is set at 946,000 -- that's over eight readers per issue.

The quality of its contents tends to swing wildly between the near-banal and the interesting. As with just about every Australian design magazine, there doesn't seem much of an understanding that not all well-designed rooms photograph well, or are even that interesting. But just when you want to give up on it, the magazine pulls off something stunning.

Then there is the writing. Often it is quite good, but every once in a while you run into something like this:

The iron lacework trims and tessellated verandah tiles are exactly what you would expect to see on arriving at a heritage-listed Victorian terrace. But when you add the extraordinary sculptural plants and sky-blue front door to the mix, a sense of expectation builds: there's clearly more to this beauty.

The three-bedroom abode in inner-city Melbourne is home to architects Annick Houle and Stephen O'Connor, their 11-year-old twins Clara and Louis, and their pets Nutella, a chocolate Labrador, and cat Couscous.

For our international readers, no, that's not parodic, and yes, it does actually accurately reflect a certain social stratum in Melbourne. A kindly editor would have taken something out of there, just to ease the cultural shock, if nothing else -- the name of the cat, perhaps, or even just the colour of the Labrador. It's difficult to go on reading when your personal twee meter is jammed over in the red zone.

As it has been mentioned, this is a photograph of the door in question:

>http://hnn.bz/HGMarch201591.jpg}The tessellated tiles and blue door}http://hnn.bz/HGMarch201591.jpg

Alas, there are no photographs of either the dog or the cat. Presumably they just weren't sculptural enough.

Yet even in the midst of this article, H&G manages to pop up something of a surprise, like this:

>http://hnn.bz/HGMarch2015-90.jpg}Study featured in H&G March 2015}http://hnn.bz/HGMarch2015-90.jpg

This is actually a very good space in this house, and it brings to life an element that is not really captured in the other images or the text of the article. There is something of that modern French sensibility here, of the easy weaving together of old and modern, something quite different from the essentially British sensibility of being comfortable amongst old things. It is possible the writer of this piece approached the house more from the latter perspective than the former.

So, yes, H&G: it is strangely compelling.

Here is another example of how the magazine, which has dawdled along for many pages, will delight the reader with something original:

>http://hnn.bz/HGMarch2015-115.jpg}Outdoor entertaining area}http://hnn.bz/HGMarch2015-115.jpg

This casual presentation of what is a really stunning outdoor area is quite common in Australian design magazines. It is an area where Australian designers are well ahead of their peers in Europe, the UK and the USA. It seems they are so good at it, they don't really appreciate their own work, and that disregard gets picked up by the magazine editors.

Pity, really, that something so creative gets overridden by other efforts that seem more emulative.

Spending on home remodelling in the US is expected to slow down later this year, because of a drop in home sales and a reluctance by young people to buy homes in the current market, according to a new report issued by Harvard University's Joint Center for Housing Studies.

The centre's "Leading Indicator of Remodeling Activity" shows that last year ended solidly for the US home remodelling industry, as the sector grew by a 7% in the fourth quarter.

But the Harvard centre estimates that growth will ebb this year, falling to 6.2% growth in the first quarter, to 3.3% in second quarter and then to 1.6% in the third quarter.

Growth in first two quarters of the year should still be stronger than it was during the first half of 2013, the report notes. But the real fall comes in the third quarter when growth falls well below 2%, compared to 5% growth in the third quarter of 2013.

The culprits: Lower home sales and a lack of first-time buyers jumping into the market, despite a recovering economy and historically low interest rates. Chris Herbert, managing director of Harvard's Joint Center said:

Due in part to weakening home sales last year, growth in remodelling spending is expected to deflate somewhat in 2015. Homeownership rates continue to slide as lending remains tight and first-time homebuyers are not yet returning to the market.

However there's no need for panic, centre officials say. Abbe Will, a research analyst in the Remodelling Futures Program at the Joint Center said:

Although contractor sentiment has cooled in recent quarters, it remains favourable overall. House price gains are moderating but still strong and home sales appear to be turning a corner now, all of which bodes well for continued, if more moderate, home improvement gains for 2015.

The Australian Competition and Consumer Commission is not objecting to Wesfarmers purchase of Pacific Brand's workplace clothing business; big clean-up bill for Woolworths; hardware suppliers and retailers team help out Habitat for Humanity; US furniture manufacturer Ashley Furniture expected open its first Australian store; and New Zealand technology company in a deal with Stanley Black & Decker to distribute its products.

For further information, simply click on the images provided.

Local News

Wesfarmers workwear acquisition approved

The competition regulator has cleared a takeover by Wesfarmers of Pacific Brand's workwear business. The $180 million purchase will add brands King Gee, Hard Yakka and Stubbies to Wesfarmers' industrial and safety division.

"Wesfarmers will continue to be constrained by a number of existing suppliers and by actual and potential imports from Asia. In retail, Wesfarmers will face competition from other retail chains and local outlets for the supply of workwear," ACCC chairman Rod Sims said. "New wholesalers and resellers have entered the market in recent years and the ACCC expects this trend will continue."

>https://farm6.staticflickr.com/5560/15031649186_6a3c7a3910_m.jpg}Wesfarmers purchase of Pacific Brands' workwear brands is expected to be finalised in December 2014}http://www.brisbanetimes.com.au/business/retail/accc-clears-wesfarmers-buy-of-pacific-brands-workwear-business-20141120-11qa60.html

Faulty cable a big cost to Woolies

Woolworths might be facing a clean-up bill of $30 million to $60 million for its role in the sale of faulty electrical cable to about 40,000 households and businesses. Woolworths sold more than 40% of the cable and will have to pay the lion's share of the bill.

A regulatory task force established by the ACCC revised its estimated cost of identifying and removing the faulty cable, rewiring and repairing walls and ceilings to as much as $160 million from about $80 million.

>https://farm4.staticflickr.com/3909/15172299711_e09dca821f_m.jpg}Woolworths could be facing a $30-$60 million bill for selling faulty cable}http://www.smh.com.au/business/retail/woolworths-faces-big-bill-for-faulty-cable-20141118-11p619.html

Industry support for Habitat for Humanity

Australian home improvement companies have teamed up with non-profit organisation Habitat for Humanity to aid a housing project on the Mornington Peninsula, Victoria. Dulux, Whirlpool, Bunnings and Mitre 10 have offered to supply building materials for the project. USG Boral will also be donating Sheetrock Brand Plasterboard for use inside the three houses that will be built for families living in housing stress.

>https://farm8.staticflickr.com/7512/15247543353_2cd46ff959_m.jpg}Local home improvement companies get behind Habitat for Humanity}http://www.architectureanddesign.com.au/news/australian-product-suppliers-and-retailers-team-up

Hemp-based concrete gains popularity

Industrial hemp, with its green credentials, is being embraced by the building industry.

Maleny-based Hempcrete Australia director Johan Tijssen has now built several buildings using hempcrete, more accurately known as hemp lime composite (HLC).

His latest project is a two-level three-bedroom house nearing completion at Moffat Beach in Caloundra (QLD).

Tijssen also conducts regular workshops in hempcrete construction which have attracted overseas participants. The next training is due to run in Perth early in 2015.

>https://farm8.staticflickr.com/7577/15244976244_47766dfb09_m.jpg}More buildings in Australia are being constructed using hempcrete}http://www.perthnow.com.au/realestate/home/building-industry-embraces-hempbased-concrete/story-fnk6rm4p-1227118587989

US furniture giant in Australian

US furniture manufacturer Ashley Furniture may be opening its first Australian standalone store in the Adelaide suburb of Gepps Cross in early December, according to Fairfax Media. The store will be located in a homemaker centre that is already anchored by competitor Harvey Norman. Ashley Furniture also operates stores in Canada, as well as South America and Asia, and is planning to open further stores around Australia.

>https://farm9.staticflickr.com/8571/15841473926_606735c7b4_m.jpg}US furniture retailer Ashley Furniture to open Australian outlet}http://www.smartcompany.com.au/growth/44658-us-furniture-giant-to-open-first-australian-store-in-december.html#

International News

IkeGPS secures tool maker deal

NZX-listed technology company ikeGPS has struck a deal that will see its devices sold through major DIY chains to help tradespeople quote on building and painting work.

Stanley Black & Decker will badge ikeGPS' smartphone add-on and software as its own and distribute the devices to DIY stores such as US chain Home Depot.

The company's handheld-devices and smartphone add-ons are designed to let people photograph and record the exact dimensions and location of objects from a distance.

>https://farm9.staticflickr.com/8590/15247689593_2fcfc2a119_m.jpg}ikeGPS makes a deal with Stanley Black & Decker}http://www.stuff.co.nz/manawatu-standard/business/63300355/IkeGPS-nails-Black-Decker-deal

Angie's List named fast-growing company

Angie's List, a local services marketplace and consumer review website, is ranked 219th on Deloitte's Technology Fast 500[tm], a ranking of the 500 fastest growing technology, media, telecommunications, life sciences and clean technology companies in North America.

Angie's List helps facilitate transactions between nearly three million consumers in the US and its collection of highly rated service providers in 720 categories of service, ranging from home improvement to health care.

>https://farm8.staticflickr.com/7483/15680032450_c04ac0d397_m.jpg}Angie's List is one of North America's fastest growing technology companies}http://www.itbusinessnet.com/article/Angies-List-Named-One-of-the-Fastest-Growing-Companies-in-North-America-on-Deloittes-2014-Technology-Fast-500(TM)-3611198

Kohler designing closed-loop flush toilets

For more than two years, Kohler Co. has collaborated with Caltech in the development of a photovoltaic toilet as part of the Reinvent the Toilet Challenge, organised by the Bill & Melinda Gates Foundation. In response to this project, the Gates Foundation recently approved a two-year grant to Kohler to design and fabricate five closed-loop flush toilet systems for field testing in developing world locations without adequate sanitation.

>https://farm4.staticflickr.com/3936/15614322216_bbec14831a_m.jpg}Kohler has been given a grant to design and fabricate five closed-loop flush toilet systems}http://3blmedia.com/News/Kohler-Co-Design-Next-Generation-Closed-Loop-Flush-Toilet-System-Field-Testing

Painting inspired by ladies

Chick Paint is a chalk-based paint designed to make furniture and home decor projects more fun, without the need to sand or prime beforehand. Kansas City resident Barbara McMullin created it with the help of her daughter, who has a masters degree in chemistry, because she wanted an easier way to complete the painting projects she loved.

>https://farm8.staticflickr.com/7487/15681409439_6d89506f6f_m.jpg}Chick Paint is a chalk-based paint developed in Kansas City}http://www.newspressnow.com/life/home_garden/article_ea039100-c3e7-506f-83f8-bd0c52eb3df4.html

An additional selection of stories about the home improvement industry in Australia and overseas markets. This week, Lend Lease is positive about the prospects for the local residential building industry; Lake Haven Home Mega Centre in regional NSW and anchored by Bunnings has been sold; Amber Tiles has a new head office and distribution centre; and Ikea is re-looking at its delivery options in the UK.

For further information, simply click on the images provided.

Local News

Lend Lease confidence in local building

Lend Lease chief executive Steve McCann recently told shareholders that the company's outlook was "very positive" despite its lukewarm response to the Australian economy, singling out apartment building in Australia and the UK. He told AAP: "Macro trends continue to support our residential businesses in Australia and the UK."

Three-quarters of Lend Lease's underlying earnings come from Australia, compared with 40% in 2005, but it is seeking to grow its offshore earnings by 30 to 35% in coming years.

>https://farm4.staticflickr.com/3906/15385495971_a8d2099e71_m.jpg}Lend Lease remains positive about local building}https://au.news.yahoo.com/thewest/business/a/25513321/lend-lease-lukewarm-on-economy/

Regional bulky goods centre sold

Private equity real estate firm Altis Property Partners has purchased the Lake Haven Home Mega Centre in regional NSW for $40.5 million. It is anchored by national retailers including Bunnings, Ray's Outdoors, Harvey Norman, Pets Domain, The Sleeping Giant, Anytime Fitness, Autobarn, Beds R Us, Godfreys, Barbeques Galore and Beacon Lighting.

>https://farm6.staticflickr.com/5605/15623950259_9d9eae94b3_m.jpg}Lake Haven Home Mega Centre in regional NSW has been sold for $40.5 million}http://www.theaustralian.com.au/business/property/altis-buys-regional-bulky-goods-centre-for-405-million/story-fnko7zi0-1227106415503

Amber Tiles' new HQ, distribution centre

Tile retailer, Amber Tiles has signed a seven year lease for 10,000sqm of a Blacktown distribution centre for a new headquarters and warehouse. The group now supplies its 26 franchised and company-owned stores across NSW and the ACT, as well as three stores in Queensland from the Blacktown distribution centre. It contains 7000 pallets of tiles and pavers.

>https://farm6.staticflickr.com/5612/15809789465_7fd63c1855_m.jpg}Amber Tiles has moved its head office and warehouse to Blacktown (NSW)}http://www.insideretail.com.au/blog/2014/11/14/amber-upgrades-warehouse-facility/

International News

Ikea overhauls delivery options

Ikea in the UK is investing heavily in fulfillment and improving convenience to reflect consumers' changing lifestyles, including falling car ownership in cities. It will introduce click-and-collect trials next year, at unnamed locations, as it shifts its model away from its traditional cash and carry offer to meet growing customer expectations. Ikea is also investing in improving its home delivery offer to cope with high demand for its picking and delivery service.

>https://farm8.staticflickr.com/7485/15190415333_401a3a40aa_m.jpg}Around 30% of Ikea orders are delivered to UK homes in response to declining car ownership}http://m.retail-week.com/5065860.article

Homebase stores could be sold

UK discount retailer B&M is in talks with Home Retail Group (HRG) to buy dozens of its Homebase stores. A deal has not yet been reached and other retailers have also shown interest to HRG, according to Sky News.

Home Retail recently said it would close about 80 of its 323 stores over the next four years through a combination of lease expirations and property exit deals with other retailers.

>https://farm4.staticflickr.com/3865/14490027473_e06eb3d5a4_m.jpg}Home Retail Group could be selling some of its Homebase stores to B&M}http://www.euronews.com/business-newswires/2790500-bm-in-talks-to-buy-dozens-of-homebase-stores-sky-news/

Panasonic considers M&A deals

Japanese electronics conglomerate Panasonic Corp. is considering M&A deals to bolster its position in the European home appliance market as it shifts its focus to growth following years of restructuring. CEO Kazuhiro Tsuga, credited with leading the company's turnaround since his appointment in 2012, told Reuters: "We need a partner who understands the European market in the white goods segment."

>https://farm8.staticflickr.com/7525/15809934475_056d04c1e7_m.jpg}Panasonic is considering M&A deals in Europe}http://www.reuters.com/article/2014/11/10/us-panasonic-ceo-idUSKCN0IU0FA20141110

The man who built Home-Fix

The rise of hardware retail group Home-Fix mirrors the evolution of the Singapore home from simple kampung (village) dwellings to modern houses and high-rise apartments. Before Home-Fix founder Low Cheong Kee was born, his grandfather opened Chop Tian Seng, selling charcoal and chopped firewood in the early 1960s. Later, in the 1970s, his parents saw how Singaporeans were moving out of kampungs and into flats, and realised that paint, plumbing items and tools were in demand. They added these items to the inventory for sale.

>https://farm8.staticflickr.com/7517/15624791657_991373bafe_m.jpg}Home-Fix mirrors the evolution of the Singapore home}http://www.straitstimes.com/lifestyle/more-lifestyle-stories/story/the-life-interview-the-diy-man-who-built-empire-20141110

Amazon debuts digital assistant for homes

The e-commerce giant has unveiled Amazon Echo, a stationary tower activated by voice commands or through an accompanying mobile app. Similar to other digital assistants - like Apple's Siri, Microsoft's Cortana or Google's Google Now - Echo can scour the internet to answer questions, tell the time or check the weather. Users can also tell Echo to add items to a shopping list on the app.

>https://farm8.staticflickr.com/7573/15810011125_b9bf4ed37b_m.jpg}Amazon Echo is a digital assistant for the home}http://www.cnet.com/au/news/amazon-debuts-siri-like-digital-assistant-echo-for-your-home/

Buoyed by rising property prices, homeowners are choosing to renovate in greater numbers than any time in the past four years. Principal architect at Casey Brown, Rob Brown said:

There's an optimism out there. All the builders we know are busy. Its not back to boom times by any stage, but there's a healthy feeling in the market.

Approvals for home alterations and additions have hit a four-year high, according to ABS building approvals data. BIS Shrapnel analyst Kim Hawtrey told AFR Weekend:

This sort of data is definitely affected by the value of people's homes. We've seen an increase in house prices, and it makes people feel wealthier...makes them feel as if improvements they make to their home are worthwhile and likely to generate a good return.

Some homeowners could be choosing to renovate and to build new space within an existing home rather than running the risk of buying a new home at the top of the market, Dr Hawtrey said.

But it is more likely that consumers are capitalising on cheap loans, low interest rates and a feeling of wealth triggered by rising asset prices, known as the "wealth effect". Dr Hawtrey said:

There's a borrowers benefit from low interest rates and a wealth effect, and they're the two main factors at play.

While climbing house prices might put some potential home buyers off the idea of buying a new home, renovations aren't necessarily a more prudent alternative. Ian Stapleton, a partner in Clive Lucas Stapleton said:

It is generally more economical to move house if you want more room, rather than trying to build on to it. But if you've got a wonderful location or a sentimental reason, you might want to stay where you are.

The architect, known for heritage restoration and conversions, has noticed a rise in enquiry over the past three months, which he attributes to a higher level of political stability and the dissipation of political rhetoric on themes such as belt tightening and austerity. Stapleton said:

Treasurers talking about over-spending and having to cut back has that - dampening effect on people's confidence.

Brown has also noticed a spike in enquiries for renovations, which he puts down to a perception that renovations will generate good returns come sale time. He said:

House prices going up allows people to feel that if they spend money on their home, and then for whatever reason they have to sell, that they'll get their money back.

An additional selection of stories about the home improvement industry in Australia and overseas markets. This week, The Good Guys scored well in a global customer service survey; Gerni is promoting its latest high pressure cleaner range in a TV and online campaign; Channel Ten has a new DIY show; and New Zealand construction projects should reach NZ$1 billion over the next three years.

For further information, simply click on the images provided.

Local News

Shoppers decide customer service

The Good Guys were recognised for their high standards of customer service by the International Customer Service Professionals (ICSP), an industry body for customer service professionals. The award was decided by consumers who took part in a survey that covered 15 categories.

The companies that are getting their digital strategies right had a noticeably higher score than those just paying lip service to having a website or Facebook page.

>https://farm8.staticflickr.com/7535/15568316719_3a2e422c1f_m.jpg}The ICSP's Customer Service Excellence study generated 29,000 reviews}http://www.applianceretailer.com.au/2014/11/survey-reveals-best-worst-customer-service-shoppers-point-view/

Gerni's "spidey" advertising

Gerni has created a new TV and online campaign for its high pressure cleaner range, with a spider as its central focus. It showcases the Titan product and demonstrates the versatility and easy functionality of the pressure cleaner. Diane Tannous, marketing manager at Nilfisk-Advance said: "The spider we created is a likeable character and gives us a great brand asset to use in POS."

>https://farm4.staticflickr.com/3941/15568343167_0e2b47c337_m.jpg}Gerni's latest campaign was created by Bloke agency}https://www.bandt.com.au/advertising/campaign-bloke-cleans-gerni

ACCC update on cable recall

Masters Home Improvement sold approximately half of the 4,000 kilometres of recalled Infinity electrical cable, ACCC chairman Rod Sims told a Senate Economics Committee at an estimates hearing recently. He said: "Masters supplied approximately half of the affected Infinity-sourced cable."

>https://farm4.staticflickr.com/3909/15172299711_e09dca821f_m.jpg}Infinity electrical cabling does not comply with the ageing requirements of Australia's electrical safety standards}http://www.applianceretailer.com.au/2014/11/masters-infinity-cable-recall-update/

Mayo Group goes mobile

Mayo Group has embraced mobility and business intelligence to drive sales of its products. It supplies hardware, industrial safety and security products to retailers such as Blackwoods, Bunnings, Big W and Kmart. The company is using e-commerce product Pronto Avenue which is integrated with its existing Pronto Xi ERP software. Using Avenue allows staff more accessibility using their iPhones.

CFO Nicole Hua told Computerworld Australia: "Our sales staff can take orders from anywhere, and like a shopping-cart approach, the information is captured once and the order is made. [They] get full visibility over orders and information such as pricing, outstanding orders and terms on the go."

>https://farm8.staticflickr.com/7571/15568859310_15ee9535d0_m.jpg}Mayo Group staff are increasingly going mobile}http://www.computerworld.com.au/article/558719/mayo-group-goes-mobile-speed-industrial-sales-turnaround/?utm_medium%3Drss%26utm_source%3Dtaxonomyfeed

Ten launches DIY show

Channel Ten has a new afternoon program called The Home Team which is aimed at home improvement enthusiasts. It will run from Monday to Saturdays for a 10-week period, and has signed up a number of partners including Daikin Air, REA, BOQ, Berger, Haier, Silkkens, Stratco, HPM, Beaumont Tiles and Monier.

Builder James Bawden, interior stylist Julia Green and landscape designer Anthony Scott will show audiences how to undertake a variety of DIY tasks. The hosts will also undertake the job of completely renovating a triple-fronted, double brick "renovators delight".

>https://farm4.staticflickr.com/3943/15751912541_fd4de00851_m.jpg}A new DIY show will be shown weekday afternoons on Channel Ten}http://mumbrella.com.au/ten-launches-diy-show-afternoon-timeslot-259178

Hire A Hubby awards

NSW couple Greg and Cathy Smith were singled out for the state prize at the Hire A Hubby franchisee of the year awards. The couple joined the organisation in 2008, and are responsible for the Cronulla and Caringbah areas.

Hire A Hubby began in Melbourne in 1995 as a single-person operation and now has 300 franchisees in Australia, 70 in New Zealand and 20 in Britain.

>https://farm4.staticflickr.com/3945/15134080464_5d99135c7b_m.jpg}Hire A Hubby acknowledged its best franchisees recently}http://www.theleader.com.au/story/2659229/hire-a-hubby-gets-a-gong-for-doing-odd-jobs/?cs%3D1255

Housing boom benefits Nick Scali

The active housing market is expected to help deliver a 20% in first half profit for furniture retailer, Nick Scali. The company has notched up double digit growth in sales orders for the first quarter of the financial year, even though it says business has been volatile. Anthony Scali, managing director, Nick Scali, said that based on recent customer demand, first half net profit could be about 20% above the $7.87 million made in the same period last year.

The retailer preparing to open three stores in Perth and a distribution centre in 2015.

>https://farm8.staticflickr.com/7509/15754130455_aaf7978c16_m.jpg}Furniture retailer Nick Scali expects short term volatility to continue}http://www.insideretail.com.au/blog/2014/10/30/housing-boom-boosts-nick-scali/

Super Retail Group potential buyer

Shares in Super Retail Group (SRG), owner of Rebel Sport and Amart Sports have surged on speculation that major foreign sports retailers want to buy into in the company. SRG also owns Supercheap Auto, Ray's Outdoors and BCF.

Its shares gained 85 cents, or 12.1% to $7.90, while the wider market fell. The move followed reports the world's largest sports retailer, Intersport or British retailer Sports Direct, were behind approaches to SRG shareholders. However a spokeswoman for Super Retail said CEO Peter Birtles was not aware of any approach.

>https://farm4.staticflickr.com/3774/12031755763_264ac09d7d_m.jpg}Super Retail group may be an acquisition target}http://www.insideretail.com.au/blog/2014/11/06/srg-soars-amid-buyer-speculation/

International News

Billion dollar projects in NZ

The second National Construction Pipeline report confirms building and construction activity in New Zealand is expected to reach unprecedented levels by 2017. New Zealand Building and Housing Minister Dr Nick Smith said: "[It] points to the biggest construction boom this country has seen in decades totalling NZ$100 billion over the next three years. It anticipates a minimum 10% increase in activity every year to 2017, reaching a value of NZ$35 billion. We are looking at the longest sustained period of growth in construction activity in 40 years."

>https://farm8.staticflickr.com/7540/15730601856_6e8f107f7f_m.jpg}Growth in construction activity is on the cards for every region in New Zealand}http://www.scoop.co.nz/stories/PA1410/S00228/report-forecasts-100-billion-construction-boom.htm

Valspar contributes to colour launch

Louisiana-Pacific (LP) CanExel refinished hardboard siding launched three nature-inspired, prefinished wood siding colours. They include Cliffside (an earthy dark brown), Sandalwood (a warm, inviting light brown) and Coastline (a calm medium grey). These colours were developed in collaboration with Valspar. LP CanExel's colour palette has now expanded to 21.

>https://farm8.staticflickr.com/7512/15569008848_6d25f35c88_m.jpg}Sandalwood is one of three new colours LP CanExel developed with Valspar}http://www.zacks.com/stock/news/152915/valspar-partners-louisianapacific-in-new-color-launch

The alfresco area is becoming the most popular room of the house for families to spend their time, according to Ciaran Brennan, from WA-based Pyro Designs. He said:

Most if not all new home builds now come with power and gas points ready for an outdoor kitchen to be installed, which tells us that people are now thinking of their outdoor kitchen while in the planning stage of their new home or renovation.

The popularity of outdoor living has simply grown due to its affordability and modern design options.

Brennan advises his customers to look into the new and innovative, durable and UV-stable materials over the more historically used, and high- maintenance commercial-looking stainless steel. The modular systems are still popular, due to improved manufacture and guarantees now being offered with some systems. He said:

The custom outdoor kitchen is now the most popular choice. We have found that people enjoy designing an outdoor kitchen around their preferred barbecue and appliance choices, while also having the luxury of choosing colours to suit their home.

Design and finishes

Nick Jolley of Patio Living said open-plan areas connected to the garden with the ability to enclose and protect in the cooler months via blinds, shutters or bi-folds are still the classic format for outdoor areas.

However Jolley said decorative screening was making ground, with screening materials such as laser-cut metal replacing simple lattice and timber more like garden art. It doubled as a feature and a privacy screen. He said:

Cedar lining is also popular, along with white lining options in both timber and gyprock, especially where the alfresco extension is over a deck and clients want a contrasting ceiling.

Travertine and granite paving tiles were almost completely replacing poured limestone and limestone pavers. Jolley said:

They offer a more durable, smarter finish, and laid on cracker dust or cement they eliminate the old drama of weeds and ants completely.

Furnishing and fabrics

Katie Rowley of Eco Outdoor said oversized outdoor furniture pieces are popular this year. She said:

Think luxurious outdoor sofas, which are beautifully simple pieces made with quality materials. Features such as chunky rope weave, solid teak frames and beautifully soft outdoor linens are key to this look.

Raw materials such as teak, and outdoor linens are also ideal for this season. She said:

Natural materials age and weather beautifully with time and are always the perfect complement to outdoor spaces, year-round...

Sam Stabler of Drovers Inside and Out said an industrial palette of recycled teak, metal, and rustic boat wood and slab tables were on trend. She said:

Lounges and day beds seem to be getting stronger every year as people want to relax and be comfortable.

Keruing hardwood timber lounges and dining suites are still very popular as they are traditional yet still stylish.

Poly resin wicker in more natural-looking weaves and colours were popular for modular lounges, day beds and dining. Stabler said:

We're seeing shades such as neutrals, greys, turquoise, coral and citrus colours like lime, yellow and tangerine dominating.

Styling and accessories

Greg Baker of Angove Street Collective, who has just finished his own outdoor cafe, Miss Watson's Garden, said some of the trends that inspired the space included painted timber planters and monochrome furniture. He said:

We have styled with custom-made painted timber planters in ivory, charcoal and amethyst. Planters are perfect for mature fruits trees such as limes, apricots and lemons for a pop of colour in a garden.

Powder-coated metal outdoor occasional chairs in black or white, with timber features in mango wood or oak were ideal for outdoor furniture. He said:

The monotone palette of ivory though to black with lots of light oak is a really fresh, stylish look. It can be accented with aqua, turquoise or yellow.

The trend this summer is for bringing the indoors out, with outdoor rugs and picnic baskets creating a garden dining experience at home.

Michael Donatelli of Oggi Stone Craft, said that while contemporary home design was increasingly popular, the trend for classic and traditional garden adornments remain strong. He said:

Pots lined in a row to disguise a fence line along with stone urns and statues are popular because they add a bit of warmth to what can often be a clinical setting of a modern home. Natural and neutral colours never go out of fashion, and the natural hard stones and cement pieces are highly durable with little maintenance requirement.

Water features - from water walls to industrial construction to classic-style fountains - had never gone out of fashion and added a sense of calm and feng shui to an outdoor space. Donatelli said:

The other popular items are gargoyles, which are said to ward off bad spirits. We've been installing these anywhere from cottage gardens to multimillion-dollar new builds.

The competition policy review draft report has recommended deregulating retail trading hours while also proposing the National Competition Council (NCC) be replaced by the Australian Council for Competition Policy, established and funded by the states.

Full deregulation of retail trading hours was overdue and restrictions should be removed as soon as possible, according to the competition review panel. Online shopping was undermining restrictions on retail trading hours and disadvantaging traditional bricks-and-mortar retailers.

The Abbott government welcomed the draft competition review. Minister for Small Business Bruce Billson said:

The review focuses on improving outcomes for Australians, by making markets work in the long term interests of consumers.

The panel, chaired by economist Ian Harper, proposed a body that would advocate and educate in competition policy. It would be responsible for administering payments to areas where implemented competition reforms result in disproportionate effects.

The panel said the rise of Asia's economy, Australia's ageing population and new technologies will test the whether Australia's competition policies, laws and institutions are "fit for purpose".

Australia needs to improve its capacity for agility and innovation, while greater choice is needed in health care to meet the demands of an ageing population, in a digitally disrupted market where technology is changing the way consumers engage with markets, it said.

Some of the priority areas for reform included removing restrictions on parallel imports.

The panel said restrictions intended to benefit local producers by shielding them from international competition are easily circumvented by changing technology, and online shopping. Relaxing these restrictions would deliver net benefit to the community.

The new council also recommended regulation changes to the Australian Competition and Consumer Commission for investigation of breaches of the law, but the review panel said the ACCC should retain both competition and consumer functions.

The panel believes the ACCC is a well-regarded and effective body but said that its governance would be strengthened with input from individuals free of responsibility for its day-to-day operations. The panel said:

This would bring an 'outsider's view' and, in particular, allow business, consumer and academic perspectives to bear directly on ACCC decision-making.

Inspired by home renovation shows including The Block, House Rules and Selling Houses Australia, 68% of homeowners plan to renovate in the next two years and of these 36% plan to renovate in the next year, new research by St George Bank has found.

But about one in three Australians conceded that they didn't save enough money to get their renovation project started on the original start date.

When it comes to setting aside a budget, 38% plan to spend between $5000 and $10,000 on renovating while one in five plan to fork out $20,000 on their dream renovations.

St George's general manager of retail banking, Andy Fell, says the renovation spirit remains strong but homeowners need to have a serious plan of attack to ensure their renovations get off the ground. He said:

The more time you can spend doing a plan and doing research the more success you'll have in the renovation taking place. Commit to a budget, then you can work out how much you need to save each month.

If you have a separate savings account the money doesn't get lost in your everyday spending and you have a better chance of creating the budget that you'll need to start your renovations.

Younger generations are the most determined when it comes to renovating - homeowners aged 30-34 have the biggest budgets, with one in five planning to splash more than $20,000 on their renovation project.

AMP financial planner Dianne Charman says it's critical renovators stick to a budget. She said:

Don't over-capitalise, it's really hard not to do this because it's your home. If you can't ever get your money back then why wouldn't you spend that on holidays or paying off your loan quicker. Have a reality check and make sure you project plan and work on what you need to borrow and then pay that amount down before you borrow again.

Around the world, the trend toward increasing levels of prefabrication is gaining momentum. However the building industry in Australia is not keeping up with overseas trends, where labour costs are being brought down by off-site manufacturing.

It needs to halve on-site construction times over the next decade or risk being left behind, according to industry leaders such as David Chandler OAM, best known for his role as construction director of Canberra's Parliament House.

A strong advocate for prefabricated building, Chandler said the local industry needs to reduce overall costs by up to 20% and develop its off-site construction sector to remain competitive.

He believes off-site construction will eventually represent between 10-15% of Australia's overall building sector by 2023, and that it could miss out on more than $30 billion dollars annually and employment for 75,000 people.

Chandler also suggests it needs to cut reliance on imported building materials by up to half and on-site labour costs by 30%, and says the development of a healthy prefabrication industry will help bring this about.

Prefab event

Sarah Backhouse, CEO of prefabAUS, agrees with Chandler's assessment and believes prefabrication is transforming both off-site work and on-site construction.

prefabAUS is Australia's first prefabricated building conference and was held in Melbourne recently.

Backhouse said overseas off-site manufacturers were already turning building into a global industry. She explains:

If Australia doesn't move to increase off-site capabilities now, we could lose a major slice of our construction industry off-shore.

Perhaps one of the best known local pre-fabricated buildings is the Docklands library in Melbourne, which opened in June. Made largely from cross-laminated timber, the core structure of the library was made off-site and put together by a small team of carpenters instead of a huge workforce of builders.

Its wood construction meant it was far lighter than concrete. The prefabricated nature of the structure also meant mobile cranes had been used, rather than more expensive tower cranes. Developer Lend Lease slashed months off construction schedules.

Rob Colquhoun, managing director of Prebuilt, has three factories in Bayswater (VIC) that build commercial and residential projects to be installed on-site. The company produces around 50 houses a year.

He estimates prefabricated homes account for around two per cent of the residential building market at the moment, and that it will grow.

Colquhoun said prefab housing is ''the dominant way of building a house in Japan. In northern European countries including Sweden, Norway and Germany. Prefab has had a much larger take up than in Australia''.

He expects the market to grow because there had been ''a change in paradigm'' in prefabricated homes, from granny flats and kit homes to well-designed houses. He said:

The people who buy our houses now are the early adopters; they've done their homework and are seeing a way for them to get good design and architecture without having to undertake the risk.

Industry hub

A hub dedicated to increasing the competitiveness of local prefabricated building products has just been launched. The PrefabAUS Hub is a partnership between the federally-funded Manufacturing Excellence Taskforce Australia (META) and PrefabAUS.

According to META, the construction industry makes up over a tenth of national GDP, or $150 billion annually. The prefabricated housing sector makes up only $4.6 billion of that, but is tipped to grow at over five per cent per annum. Zoran Angelkovski, META's managing director said:

The hub participants will grow prefabricated housing through development of new architectural design thinking, innovative techniques and processes, and work towards advanced manufacturing within the field.

Spending on gifts such as hardware tools and skincare for Father's Day is tipped to increase by 3%, according to research firm IBISWorld - despite consumer sentiment still suffering post-budget. The biggest increases will be in the personal care, footwear, clothing and accessories categories.

Most of the money spent this Father's Day will be on lunch and dinners, with restaurants set to receive a $176.7 million boost. Tools, hardware and electronics have the second-biggest share of the spending.

IBISWorld Australia general manager Daniel Ruthven said Australians would spend $731.7 million on Father's Day this year, with the average person spending $51.60 on their dad. He told Fairfax Media:

Male grooming products have become increasingly popular, as dads become more comfortable looking after their appearance. Cosmetic and grooming product manufacturers are working hard to penetrate the previously untapped, but sizeable, male market.

But Westpac Melbourne Institute consumer sentiment figures from August revealed sentiment was still suffering post-budget, despite some improvements. Sentiment remained 1.2% below its level prior to the May 14 federal budget, and was still 10.8% below its 2013 post-election peak.

However, falls in consumer sentiment may not reflect spending changes. The latest Australian Bureau of Statistics figures revealed that despite poor consumer sentiment since the budget, retail turnover for the June 2014 quarter was significantly higher than in the previous corresponding period.

According to a new report from BIS Shrapnel, dwelling building activity is reaching a new high in Australia and the majority of these builds are apartment blocks.

Currently, two high-rise apartments are being built for every five detached houses, a rate twice the historical average, according to BIS Shrapnel associate director Kim Hawtrey. He said:

New housing starts are forecast to reach 190,000 nationwide in 2014/2015, which will surpass the previous peak of around 187,000 set back in the 1994 boom. In the next two years we'll also see the recent emphasis on high-rise units continue.

Housing starts have grown by 14% in 2013/2014 to a total of 184,350 annual commencements. BIS Shrapnel predicts commencements will rise by a further three per cent in 2014/2015, before easing between 2015 and 2017.

Strong population growth is a key driver behind the upswing in housing construction. Dr Hawtrey said population growth was at 1.7% per annum, so that demand for housing outstripped supply. Dr Hawtrey said:

We estimate that it will take the next five years to eliminate the unmet demand for housing. We therefore do not see this housing shortfall closing until 2018.

New South Wales has the strongest outlook, with housing starts predicted to grow by nine per cent, while Queensland is set for a three per cent upswing. Victoria has experienced over-building and may see a sharp contraction in the sector by 2015/2016.

Previous growth leader, Western Australia, is set to fall by five per cent as mining investment begins to fade.

Australian retailers are falling behind their international competitors in the adoption of digital commerce, particularly in the area of customer engagement, according to a newly published report.

The consumer electronics industry is leading the way, while sectors such as food, hardware or furniture are not keeping up with their international counterparts. They are failing to achieve the balance required between omnichannel execution and customer-centric engagement.

The second Australian Digital Commerce Report from the Australian Digital Transformation Lab, a joint venture between Capgemini Australia and the University of Sydney Business School, describes 38% of all Australian retailers as "laggards" when it comes to digital commerce and warns that they are at risk of losing customers to foreign competitors. Ben Gilchriest, digital transformation lead at Capgemini Australia explains:

While digital execution has become a necessity for retailers to connect with consumers, Australian companies must now work on improving strategy, to ensure they don't lose their customers to overseas competitors who are delivering exceptional engagement levels.

And the University of Sydney Business School's associate professor Kai Riemer says that Australian retailers must take a proactive approach to digital commerce, "to build both the execution and engagement aspects simultaneously."

According to professor Riemer, closing the gap between Australian retailers and international market leaders requires "strong improvements in omnichannel integration, the strategic use of customer data to drive one-on-one engagement and a greater focus on systematic engagement across social media channels."

With more than 50% of Australians preferring to shop online where possible, the report says that retailers need to stand out from the crowd by drawing on a range of digital commerce features to engage with their customers on a more personalised level.

The report also highlights the importance of balancing the operational aspects of digital execution with new approaches to engage customers in both social media and on the retailer's own digital platform. Professor Riemer says:

Only if retailers engage with customers consistently across different channels will they be able to successfully grow and harness a loyal customer base to ensure continuing customer satisfaction and profitability. Operationally, this means treating customers as individuals and not as part of an anonymous group, even if this is done in a mass customised way.

The report also reveals that local retailers are lagging behind by 33% in building customer relationships, while only 26% share the "High Achievers" category with international market leaders. Companies in this category have achieved above 50% coverage of digital functionality in both the execution and engagement. Gilchriest says:

Australian retailers are falling behind international market leaders who have invested for many more years in digital commerce features that support more personalised customer experiences.

The larger the gap between retailer and consumer becomes, the greater the chance that customers will switch to suppliers overseas. The longer this goes on, the harder it becomes for local retailers to persuade them back.

As in the case of local councils in Australia, city governments in the US can issue zoning requirements prohibiting the construction of giant retail stores.

In the US, the typical goal of these regulations is to protect local businesses from the crushing competition of big box stores. But it turns out such rules often backfire, according to research by Raffaella Sadun, an assistant professor in the Strategy unit at Harvard Business School.

Studying census data on retail stores located in England, Sadun found that stricter planning restrictions against big box stores actually coincided with independent retailers closing down or hiring fewer workers, a signal their business was weakening. Why?

Because large retail chains can skirt the regulations by opening small stores instead. And while their giant superstores generally sit on the outskirts of a city, their smaller chain stores are often located downtown, creating more direct competition against the "mom-and-pop" stores.

Sadun focused her study on England, in large part, because history provided a convenient research environment. In the late 1980s, Prime Minister Margaret Thatcher adopted a more lenient approach via planning regulations, which allowed for a significant increase in big box store openings across the country.

Sadun found that planning restrictions against big box stores coincided with independent retailers closing down or hiring fewer workers. She says:

This started to be scary. People were concerned that these superstores would keep the small stores out of business and drain activity from local town centres. So, in the early 1990s, subsequent governments introduced much more stringent planning guidelines, which substantially increased the regulatory steps needed to obtain permission to open large retail stores - above 1,000sqm, especially those located on peripheral locations.

While the planning guidelines were centrally determined, their actual implementation was delegated to local planning authorities. Sadun explains:

This setup gave me the opportunity to look at the variations between areas with and without regulations, but also to look at points in time - before and after regulations within the same local authority.

Personally, she was curious about a trend she was noticing first-hand while attending the London School of Economics. Tesco, the second-largest retailer in the world, was opening small shops on street corners all over the city. (While the largest of Tesco stores take up nearly 6,000sqm, Tesco Express convenience stores are, on average, only 195sqm.) She says:

I was living there when these regulations had just started to become much tighter. And suddenly these mini-Tesco shops were everywhere. You could see with your own eyes that something was happening.

To evaluate the effects of planning regulation on independent retailers, Sadun studied the retail landscape in the United Kingdom between 1998 and 2003. Not surprisingly, she discovered that the implementation of strict retail planning regulations coincided with a reduction in applications for retail superstore construction.

There was a big decrease in the average size of stores that belonged to large retail chains, such as Tesco or Asda, a British subsidiary of Walmart.

Yet large retail chains (those with more than 10,000 employees) experienced significant growth in employment between 1998 and 2004. In other words, a decrease in the average size of mega-chain stores coincided with an increase in the chains' overall employment rate. At the same time, employment at small retail chains and independent stores declined.

Sadun sums up the findings in her paper called "Does Planning Regulation Protect Independent Retailers?" She writes:

Planning regulation ended up harming independent retailers. According to the results shown in the paper, the decline in planning grants generated by the regulatory reforms accounted for between 4% and 22% of the employment growth experienced by small formats, and 6% and 26% of the employment decline experienced by independent retailers over the time period [between] 1998 and 2004.

As Sadun had observed walking through the streets of London, tiny Tesco shops were replacing independent businesses. She says:

What the politicians did not anticipate was that these large supermarket chains were going to come in anyway, regardless of regulations. They had reached a scale and a capability with IT and logistics, such that they could operate a network of small stores. It was more costly to operate this way, but it was feasible.

And what of the sections of the England that decided not to apply the regulation guidelines against stores larger than 1,000sqm? It turned out that these huge stores did not seem to hurt independent businesses at all.

In fact, independent retailers actually seemed to benefit when local governments granted applications for giant stores on the outskirts of a city or town. Each additional grant for a giant store was associated with a .17% increase in employment among independent stores in the same postcode. Sadun says:

In the areas with the big stores, you see employment growth. You don't see this killing effect on the small shops.

Considering this onslaught of small format chain stores, Sadun believes the subject of big box regulation warrants further research:

Ideally, the creation of an economic model that would help policy makers to predict the implications of entry regulations more accurately, and in particular the competitive implications of the different store formats.

To read more on Sadun's research, go to

>http://www.careerindia.com/img/2013/07/04-harvardbusinessschool.jpg}Raffaella Sadun's paper explores planning regulations on independent retailers}http://www.hbs.edu/faculty/Publication%20Files/12-044_bbe12488-f9a7-42d4-93dc-7b888a87faf0.pdf

The Housing Scorecard ranks the performance of each state and territory in Australia over the past quarter on 14 criteria including detached house building, multi-dwelling building, renovations, construction labour force, housing finance and turnover of established homes. It is published by the Housing Industry Association every two years.

The scorecard assigns each state a score of one to eight for each criterion, with one representing the worst performing state and eight representing the top performing state.

While Western Australia continues to lead the way with an overall score of 82, New South Wales jumped from fifth spot to second after recording a top-three performance in all but four criteria.

The Australian Capital Territory, Victoria and Northern Territory remain in the middle, while the improving South Australia and Queensland are a little off the pace. Tasmania ranked well behind the other states, recording either the worst or second worst performance in eight criteria.

Western Australia leads the way in terms of numbers of housing loans to first-home buyers, new detached housing under construction and established home and multi-unit sales.

Victoria scores highly on renovations activity and housing finance to existing buyers, the Northern Territory ranks highest on employment size and hours worked as well as new homes under construction (multi-unit), the ACT comes first in new home approvals (detached and multi-unit) and New South Wales is the best in terms of new home commencements (multi-units).

HIA chief economist Harley Dale said the latest report underscores the extent of the housing recovery in New South Wales, much of which he said can be attributed to strength in the multi-unit sector in Sydney. He said:

The rapid turn of fortunes in NSW is the big story in this report. Six months ago we noted there was momentum building in NSW and this has been confirmed by the latest analysis.

NSW is now the second strongest residential building market in the country, having been ranked number five only six months earlier.

At the other end of the scale, Dale said there have been some signs of improving conditions in the Tasmanian economy, but there was no sign yet of this flowing through to the residential sector in that state.

In its research note on the renovations market, the Housing Industry Association (HIA) writes that the wide range of activities in the sector can make it difficult to explain the fluctuations that occur. Alterations and additions to residential dwellings range from minor repairs through to major reconstructions.

There are drivers of demand for renovations that remain relatively stable and can be easily anticipated. But other demand drivers depend on economic conditions or demographic developments.

Dissecting the factors that influence demand provides insight into the renovations market.

General home maintenance

Perhaps the least glamorous part of the renovations sector, general maintenance and home upkeep account for the largest share of expenditure on alterations and additions each year. While this type of work is characterised by a large number of relatively low value jobs, the quantum of total work can be huge given that there are over nine million private dwellings in Australia. They all require regular maintenance.

Demand for general maintenance is likely to be fairly stable and predictable as households generally undertake routine upkeep of their homes irrespective of the fluctuations in economic conditions.

Disaster prone areas

Unpredictable climatic events such as cyclones, flooding or bushfires can result in extensive damage to the housing stock within the affected areas, so large scale reconstructions are often necessary.

The unpredictability of these types of events makes long range forecasting impractical. However In the wake of such events, affected areas usually experience a substantial uplift in building activity due to repair and reconstruction work.

Demand in these situations is not likely to be dependent on economic conditions as most of the cost of reconstructive and repair work will be met by insurers.

Rejuvenation and modernisation

Renovation is typically undertaken to update an ageing home. Modernising a home will involve bringing the living space up to speed with contemporary trends and technologies. This can range from relatively minor cosmetic updates through to major structural works.

HIA's research shows that kitchens and bathrooms are usually replaced or updated approximately every 15 years. Changes in the way households utilise living spaces has resulted in homes built today with vastly different floor plans.

For new homes, a floor plan with close integration of the kitchen, internal living spaces and outdoor living spaces has become a popular layout. The contrast in the way households used living spaces in the past and the way they do now is a factor that should drive demand for renovations.

Housing densification

In the past, detached homes would have a large yard. But over time, it has become more common for new dwellings to cover a larger area of the property with a gradual decline in lot sizes.

Households in older areas where there are smaller homes on large lots, are inclined to expand the footprint of the home with single storey additions. Homes on smaller lot sizes may not find it viable to expand laterally and will have to make second storey additions to gain more living space.

The higher costs associated with second storey additions may mean it is more cost effective to move house than undertake major renovations in these areas.

The composition of Australia's housing stock has changed over the last decade with a greater proportion of new homes being built in multi-unit developments. There is far more limited capacity for households to make major alterations or additions to these types of dwellings compared to freestanding homes.

However, as these homes age they will also require updating and will therefore generate demand for renovations, especially in kitchen and bathrooms.

DIY Market

There is an increasing trend to purchase homes to renovate with the objective of reselling the property for a profit. The growth in this part of the market has been aided by increasing aggregate home prices and some aspects of the tax system, namely the tax free nature of capital gains on the household's principal place of residence.

Changing expectations around future home price growth are likely to have a major influence on the willingness of households to undertake renovation projects as profit making ventures.

Factors that impact on transaction costs, such as changes to stamp duty rates, will affect this type of activity.

Baby boomers

These days, the baby boomer generation is either retired or close to retirement. There is some evidence to suggest that many of these households undertake home renovations relatively soon after retirement, using access to their superannuation savings.

Given that households in this group are typically well capitalised, they are likely to generate greater demand for larger renovations. They will also most likely continue to reside independently in their own home longer than previous generations.

Insufficient capacity in the residential aged care sector and changing housing preferences are additional reasons for baby boomers to continue living in their own homes. Enabling older people to live independently in their own homes is likely to require alterations, which include incorporating "universal design" principles.

First home buyers

Low levels of housing affordability among first home buyers lead to compromises at the time of purchase. Though they will eventually make alterations and additions to make it more appropriate for their needs, the financial constraints they face immediately after buying a home will initially restrict demand for major renovations.

Demand for renovations from this segment of the market should move in line with real income growth over the long term. But in the short term, demand is likely to be highly susceptible to fluctuations in consumer confidence.

Economic conditions

In most cases, home renovations represent substantive discretionary expenditure for households. Therefore, demand will be heavily influenced by factors that affect a household's financial position and willingness to commit to major capital outlays.

These factors include job security; income and home price expectations; borrowing costs; and perceptions about the broader economic and political landscape. Many home buyers make modifications to their homes relatively soon after purchasing the dwelling to adapt their home to their specific needs.

Expenditure on ownership transfer costs is also a reliable indicator of changes in the volume of property transactions. Ownership transfer costs comprise of charges incurred when acquiring property, such fees paid to lawyers, architects, surveyors, engineers and valuers, and commissions paid to estate agents.

There is a strong correlation between expenditure on alterations and additions and expenditure on ownership transfer costs.

Current market conditions

Despite shaky consumer sentiment, leading indicators of demand for larger renovation jobs (requiring council approval and valued over $10,000) suggest contemporary market conditions are improving.

There was an 8.2% increase in the aggregate value of renovation jobs approved during the March 2014 quarter. From a strictly statistical perspective, this takes the value of approvals to a level that is only 1.2% above the level in the corresponding quarter a year earlier.

Seasonal factors mean the value of lending for renovations jobs in the March quarter is generally always lower than the preceding December quarter, and this year was no exception.

The value of lending in the March 2014 quarter was 5.3% lower than the December quarter. But more importantly, the value of lending in the March 2014 quarter was 5.2% higher than the in March quarter a year earlier.

After dropping to decade lows in 2013, there is huge potential for renovations. While consumer confidence has been relatively subdued, low interest rates and home price appreciation are two important factors in favour of a recovery.

The official statistics covering the March 2014 quarter provides confirmation that some of the potential has been realised. After a slow start to the 2013/14 fiscal year, renovations investment has now posted two consecutive quarters of growth through to the March 2014 quarter.

This provides some confidence for HIA's forecast of 1.0% growth in the total value of renovations investment in 2013/14 to around $28.6 billion.

Momentum is expected to build over the following years with growth of 1.2%, 2.3% and 2.5% in each of the three years through to 2016/17. This would see renovations investment once again exceed $30 billion.

Housing Industry Association (HIA) economist Geordan Murray believes the trend towards higher density housing in Australia will have major implications on the type of renovations being done in the future. However he says that any changes will happen slowly.

There will be an increasing focus on remodelling existing space such as kitchens and bathrooms as opposed to adding new floor space. He told the Sourceable wesbite:

Looking broadly across the market, the change we are seeing now in the composition of new home building is...a significant shift toward a higher share of multi-units. We are talking about a gradual change over the long term.

If we drill down and look at the types of renovations that are typically going to occur in a multi-unit complex, they are much more limited because you are generally constrained by a smaller footprint depending on the type of unit. If it's a high rise apartment, for example, you are generally constrained by your four walls, so you are limited to what you can do within those four walls.

He noted that this means updates to multi-unit dwellings are more likely to be cosmetic, as opposed to additions of another storey or expanded floor space. He explains:

Depending on the construction that has been used to build the apartment, you might be able to move some walls around to remodel living areas, but you are not going to see the same sort of growth in second storey or bigger floor plans that you would see if the number of dwellings that we are seeing built were all detached.

Murray's comments follow HIA's publication recently of research which examined the broader economic factors affecting renovation work and the drivers of demand for different types of work.

The HIA research indicates the market may be driven by retiring baby boomers reaching the age where they can access their superannuation and therefor finance dwelling upgrades.

Renovation projects that bring older housing styles up-to-date will also become important. According to the HIA, kitchens and bathrooms are generally replaced every 10 to 15 years.

Floor plans with spare bedrooms and close integration of the kitchen, internal and external living spaces are more popular today than they have been in past decades.

Murray said near-term renovation activity levels will be primarily determined by interest rates unemployment levels and the flow on effect on consumer confidence. The HIA expects unemployment to peak at around 6.1%. He said:

When households are more comfortable with their employment situation then they are more going to feel more comfortable in going into significant investment decisions.

The May 2014 Construction Market Reports from the Australian Construction Industry Forum (ACIF) highlight continuing variability in the industry as it begins to re-align after significant national and international shifts.

The reports indicate that total construction activity for Australia in 2014-15 will be approximately $228 billion, decreasing slightly from the 2013-14 estimation of $237 billion.

This activity is spread across different states. Growth in NSW is increasing but there is a decline in WA and Victoria.

Across the nation, the reports detail marginal growth for the residential and non-residential building sectors, and reduced expenditure in engineering construction. This decrease is largely due to a plateau in mining activity and the downturn in investment in its supporting infrastructure.

Low interest rates and population growth are driving the projected increase in residential building. The ACIF's summary of each state indicates the following:

Australian Capital Territory

Significantly impacted by job cuts in the public service. Potential reductions of 5,000 to the ACT public service workforce. Lower employment will put pressure on housing demands.

New South Wales

Projected to lead the country in output growth, taking over from WA and QLD. Expected improvements in the residential building sector, boosted by low interest rates and demand for new housing and multi-unit dwellings. Commitment to mining, rail and road projects will boost their respective markets.

Northern Territory

Gross state product increased 5.5% between 2012-13, the second highest output after WA. An investment boom in mining, infrastructure and residential building projects delivered growth in 2012-13. Unemployment is predicted to remain below the national average. Major projects such as the Ichthys LNG development should boost the NT economy.

Queensland

Mining activity is fueling the QLD economy. Associated large scale infrastructure projects are increasing engineering construction expenditure beyond predicted levels. Large scale projects will be completed in the medium to long term. Increased capacity to export coal and gas worldwide should maintain QLD's income.

South Australia

Manufacturing sectors were adversely by labour costs and high exchange rates. There was a 1.3% increase in gross state product in 2012-13. Low interest rates will beneficially impact the state during this time of change.

Tasmania

A stronger second half of 2012-13 was recorded although the gross state product fell by 0.1%. A large spike in unemployment is now Australia's highest. Construction activity forecast is moderate. Economic forecast remains the same for the next 2-3 years. However the state will experience international export growth of 13.5% compared to 7% national growth.

Continued growth in exports is expected if a lower Australian dollar continues, reducing pressure on manufacturing, forestry, farming and tourism sectors. Low interest rates should boost investments.

Victoria

Key driver for construction in the state has been population growth and lower interest rates. Despite strong growth in the residential sector, construction activity in Victoria was negative in 2012-13. A further 1.5% contraction is predicted for 2013-14, largely due to a reduction in residential building activity.

Western Australia

Expenditure in engineering construction is expected to peak in 2014-15 with many major projects coming to an end. Non-residential building activity has grown strongly as support services demand grew with the rise of mining townships and rapid population growth.

The number of new homes being built in Australia is set to reach its second highest level on record in 2014, according to the latest Housing Industry Association (HIA) figures.

Almost 180,000 homes are expected to have begun construction over the 12 months to 30 June this year, a result that would be second only to the 187,000 homes begun in 1994, the HIA National Outlook noted.

The result would represent a growth of 10.3% over the past year, following an increase of 11.7% in 2012/13. HIA chief economist, Harley Dale said:

Residential construction investment will make strong contributions to Australia's economic growth this year and next, and will boost demand across significant parts of manufacturing, retail and supply/distribution sectors. Residential construction is making a vital contribution to the rebalancing of growth in the nation's economy.

Meanwhile, having hit decade lows in 2012/13, the level of investment in renovations of existing homes will rise by modest levels of 1.0%, 1.2%, 2.3% and 2.5% over the four years to 2016/17.

Looking at the states, New South Wales was found to be the strongest contributor to residential construction, with an estimated 49,000 houses being built over the past year, an increase of 21.9% and the highest level in over a decade.

While Queensland, South Australia and Western Australia also experienced a jump in residential construction, home building in the remaining states has fallen, with an estimated annual decline of 5.5% in Tasmania the lowest level the state has seen in over a decade.

High density housing

The HIA Outlook report also found the type of residential construction occurring in Australia has changed dramatically over the past few decades, with medium to high density multi-units now accounting for a larger share of construction relative to detached housing.

Despite a slowdown in the rate of growth of multi-units during 2013/14, they now account for 44% of new dwelling construction, compared to 32% ten years ago.

The market for small home repairs and maintenance is set to grow to $1 billion by 2018-19. According to a report published by research company IBISWorld, the local tradesman and handyman franchise industry currently generates revenues of $881.9 million, with profits totalling $418.9 million.

The industry has been growing at a rate of 3.2% since 2009, with annual growth set to continue at a rate of 2.2% per year.

The sector employs close to 8000 Australians, with well-known brands such as Jim's Group, VIP Home Services and Hire a Hubby the leaders when it comes to market share.

IBISWorld believes the sector has blossomed due to the increasing number of Australians who lack the time and expertise to perform tasks around the home. It has also benefitted from the steady rise in the number of households across Australia during the past five years and growth in capital expenditure on private properties.

Grey Army is a handyman business that predominately employs people over the age of 40. General manager Greg Miles told SmartCompany website the business started 21 years ago, using sub-contractors to deliver "trustworthy and reliable" home maintenance to older Australians who are looking for old-fashioned service.

The business began franchising around 10 years ago and now has 75 individual franchises operating across Melbourne. Master franchise agreements are in place in the other states. And while the business has "ebbed and flowed" over its lifetime, Miles says the company has experienced consistent growth over recent years.

He explains that many of the people who approach Grey Army to open a franchise are from all walks of life, and don't necessarily come from a trade background. Economic downturns have influenced many older workers who lost their jobs to look at operating a handyman franchise as a way of securing their future.

Miles says the market handyman franchise market is getting more competitive, although there are many "fringe dwellers" on the edges of the industry who are trying to operate their own business.

For the Grey Army, Australia's ageing population is a major influence with the company's franchisees and its clients generally fall into the Baby Boomer generation.

Housing Industry Association economist Diwa Hopkins said there could be an upsurge in the cost of most construction materials as home building activity gathers momentum. However pricing remains stable for now.

She also noted the impact would likely be furthered tempered by the fact that commercial and civil construction is currently weaker than the residential sector. Hopkins said:

I think it will be interesting to watch over the coming year or so once we start to see housing construction really ramp up to see if that has a tangible effect on input prices...So if we start to see conditions escalate and we see those high annual figures of between 160,000 and 200,000 houses (forecast ranges for houses being built per year)...that will test the industry in terms of its capacity, and we should get an indication from prices.

These comments follow the release of producer price index data last month from the Australian Bureau of Statistics which showed that overall, weighted average prices of materials used in housing construction throughout the eight capital cities had risen by just under one per cent over the 12 months to March. It only rose 2.4% over the past two years for steel and plaster.

Relatively stable prices in other materials offset rising prices in ceramic products such as tiles and clay bricks as well as paint and coatings.

The subdued nature of price increases is also being reflected in other parts of the world. Despite a reasonably strong construction market, building material costs in the United States, for example, rose only 1.5% in the 12 months to April.

Hopkins said that overall, recent house price gains across capital cities have outstripped the sum of any increases in the cost of materials, land, labour and equipment.

But she acknowledges that a recent contraction in land sales and upward movement in the price of vacant residential lots in markets such as Perth and Adelaide may be an indication of capacity constraints in terms of land available for development. The increase in lot prices has not affected major eastern seaboard markets, where prices have flat-lined.

Hopkins believes pressures may start to emerge within the trades, and cautioned against any assumption tradespeople who left building jobs to work on resource projects will necessarily return to housing sites. She said:

I think it's a bit more complex than to assume that people who have come from the mining sector will quite easily transition back into the housing sector. In terms of trade prices, we are at a point now...[where] we have seen a first round recovery in housing construction. As the second round starts to ramp up, that's when we start to push these more historically high levels...

If we start to see a ramp up in trade prices, certainly that will be an indication that the availability of trades just isn't there.

Technology advances are expanding home entertaining options, according to members of the US-based Milwaukee/NARI Home Improvement Council Inc. Members say that renovation projects have moved beyond the basement home theatre and the outside deck to multipurpose, high-tech family rooms and open-designed kitchens. Rick Goodman of remodelling business America In-Home says:

It used to be that a home theatre was a dedicated room with special seating, a projector and a large wall mounted screen. Now projectors and large wall screens are largely being replaced by large flat-panel TVs, smart TVs, and Blu-ray players with apps that provide more entertainment options, including YouTube, Facebook, and internet radio.

The trend now is about breaking the mould of how a particular space in the house is defined. Goodman says:

Today I am seeing entertainment rooms serve multiple purposes, rather than just a place to watch movies. Because a traditional theatre set up is not required, there can be more integration of the technology into the room's decor. Flat-screen TVs are built into wall units surrounded by family photos and art displays.

With many different activities taking place in what was known as the family room, they are now referred to as the great room. Homeowners aren't reserving one room just for entertaining guests. Because of new technology, it can be a reading room, a place for kids to surf the net and do homework, or a place to relax and watch TV and listen to music.

Quality sound is an important part of entertainment for TVs, internet, and traditional radio. Though technology allows for wireless speakers, most homeowners prefer speakers recessed into the walls for the best sound. For aesthetic purposes, the speaker wires are hidden behind the drywall.

Ray Shelton of Artisan Kitchen & Bath Gallery discusses how entertainment is being integrated into kitchens:

The trend in remodelling kitchens for entertaining is to remove walls so the area allows for more contact with all of the guests at the same time. It opens up the living room or family room to the main activity in the kitchen. Adding a pass-through opening in the wall is another option if the layout is not set up for removing a complete wall. This at least allows for eye contact with the people in the kitchen and ensures that the cook doesn't miss a conversation or a highlight of the game.

An open design is also becoming more popular with the increased interest in gourmet cooking, cooking groups and husband-wife cooking. In many cases, this layout requires installing a large header in place of the wall that was removed and changing the flooring of one or both areas that are being connected. Removing peninsula, wall-hung cabinets and soffits also helps to maintain eye contact as well as help everybody to feel that they are in the same room.

Creating a comfortable atmosphere and considering how the space will function are important choices when designing an open kitchen. Shelton adds:

Adding several recessed ceiling lights on a dimmer in a large matrix type of layout allows for the entire area to be lit up evenly while still having the ability to alter the lighting so that it's not too light or too dark.

Placing an under-counter refrigerator near the end of a cabinet run allows guests to grab a cold beer or pour a glass of wine without getting in the way of the cook. Couple this with a small sink and you have a wet bar that acts as a great side-prep area for the cook or a volunteer.

Kitchens remain a top remodelling project in 2014, according to the Member Profile Study done by the US-based National Association of the Remodelling Industry (NARI). It coincides with May's National Home Improvement Month. Eighty-two percent of NARI members identify kitchens as its No. 1 service.

This year, the association's 2014 CotY (Contractor of the Year) Awards program recognises top projects in 25 categories. They totalled nearly US$73 million worth of renovation projects and identified trends emerging, especially for kitchens. Tom O'Grady, chairman of NARI's strategic planning says:

Consumers want practical, comfortable kitchens that are efficient to use and easy to live in. Bigger isn't better, but homeowners still want a feeling of space, and open concept and islands are still part of kitchen trends in 2014.

Improving the overall look and feel of the kitchen was most often cited as the main motivating factor by homeowners for renovating, followed by improving functionality.

Lighting features

The continuing trend of fewer upper cabinets in the kitchen creates more space for decorative task lighting, often on adjustable arms that gives the option to have the light directed where it is needed most. Decorative task fixtures in black, iron and aged brass finishes make a statement. Other trends include:

Built-in cabinetry that looks like furniture

Mixing and layering finishes and woods is another key trend, as is built-in accent cabinets that act as framework for the rest of the cabinetry. These cabinets, often designed tall and narrow with glass fronts, provide the look of a built-in china cabinet to showcase collectables. In general, upper cabinets are less popular because they stop the line of sight, especially to backyard garden views. Additional trends include:

Wine storage

Wine is becoming more of a lifestyle choice and factoring into kitchen designs. For example:

NARI is a source for homeowners seeking to hire contractors because members are full-time, dedicated professionals who follow a strict code of ethics, observing high standards of honesty, integrity and responsibility. It is the only trade association in the US dedicated solely to the remodelling industry.

The Australian Construction Industry Forum (ACIF) believes conditions are ripe for greater investment in residential alterations and additions. Homeowners will take advantage of historic low interest rates to fix up houses rather than buying new homes.

As the infographic (main image) shows, the value of renovations will increase through to 2017-18. It illustrates the increases for each state. Figures represent large residential alterations and additions projects only (at least $10,000). Data courtesy of the ACIF which recently released a customised forecasts dashboard. Its forecasts are informed by all major building industry member bodies. To see more go to acif.com.au.

There are also indications of renewed renovation and building repurposing in many CBDs. Forecasting company BIS Shrapnel identified unprecedented levels of renovations in CBD skylines, where many office blocks are being converted to apartments. Older apartment buildings are being refurbished.

Former industrial spaces on city fringes are also being renovated into, or remediated and replaced by new apartments.

Market research from the Property Council of Australia released earlier this year found that investors are targeting more buildings for conversion to residential use. This is encouraged in part by a rising trend in inner city living, including demand for smaller apartments.

ACIF forecasters also see increased activity in refurbishment by retailers. Many retailers tipped to take the opportunity to refresh, renovate and expand their shops and service offering. The offices category is not expected to grow as rapidly as it has in the past, reflecting structural changes. But incentives for sustainability will drive continued growth in alterations and retrofits of current buildings.

Promising opportunities for new work for designers, contractors, and suppliers will be identified at upcoming ACIF Forecasts Briefings. Peter Barda, ACIF executive director of ACIF says:

Total construction activity is projected to amount to around $228 billion in 2014-15, slightly down on the 2013-14 estimate of $237 billion. Our forecast briefings will explain that there are winners and losers in those big numbers - by regions and work types.

According to CommSec chief economist Craig James, construction will pick up the baton from mining to become the driving force behind Australia's economy in the next few years. He was speaking at a media briefing in Sydney to release Commbank's latest small and medium-sized enterprise confidence report. He says:

Builders will hold the upper hand rather than miners.

While construction might not pay the same six-figure salaries as mining, it could benefit more people. He says:

The builders get the money; the carpenters get the money; all the people providing curtains and carpets and landscape gardeners and light fittings. You think about the whole process of building a home, all these people are getting extra dollars and they're able to spend that through the economy.

And it's likely to be broader in context whereas mining is much more specific to certain parts of Australia...we are going to see a number of boats being lifted all at one time.

While investment in the mining sector tripled in the four years since 2009, it's now set to slow down as demand from China falters and James expects residential construction will pick up the slack. He explains:

We're already starting to see that with things like home lending. If more loans are being taken out for the construction of houses and apartments, you tend to expect that is going to translate into more building work happening. It's the same in terms of council approvals to build new dwellings - they're at record highs.

He also busted the "myth" that times are tough in Australia, as the economy has experienced 22 years of consecutive growth with inflation rates at 2.7%. Unemployment is at 5.8% with companies holding a healthy amount of cash on the books.

But despite the slowdown in mining, it's not all bad news. It could just be the end of days where people go to the Pilbara to "fill water bottles for workers and get paid $120,000 a year". He adds:

It's by no means doom and gloom for mining services, it's just different sorts of companies are going to get the benefit.

There does not seem to be much excitement in Australia about baby boomers being a relevant demographic for hardware/home improvement retailers. However they seem to taken more seriously in the US market.

For years, Boston-based contractor Paul Morse modified homes of clients to make them easier for their longtime owners to enjoy as they age.

His company, Morse Construction Inc., would widen doorways, make showers wheelchair accessible, improve lighting, and lower cabinets and countertops. The renovated homes were more convenient, and, more important, safer for their owners to navigate as their mobility declined over time.

Then, as he recently turned 60, Morse realised it was his turn. A lot of other boomers are getting ready, too, and increasingly they're turning to certified "ageing in place" renovators and contractors, such as Morse, who are trained to make homes more accessible and liveable for seniors.

Amy Levner, manager of the liveable communities program at AARP, formerly known as the American Association of Retired Persons, said:

It's much broader than just making it easy to get around. It's about people's health. It's about people's mental health. Studies and surveys show that many people as they grow older don't want to leave their homes and are happier and healthier living there. We're striving to give people that option.

Indeed, a recent survey by Better Homes and Gardens Real Estate found that boomers between the ages of 49 and 67 overwhelmingly not only want to stay in their longtime communities after they retire, but also plan to updates or renovate their homes when they stop working.

Over the past decade, AARP has worked with the US-based National Association of Home Builders (NAHB) to come up with new "Certified Ageing in Place" or CAP, programs and guidelines for home renovators and builders. It is a three-course certification program.

The course work covers a lot of ground, from how wide doors should be for wheelchairs (about 36 inches) to the best type of door knobs (lever handles). A water closet can be easily expanded to allow for a shower on the first floor should the occupants have difficulty climbing stairs.

As boomers retire in increasing numbers and the demand for special home modifications rises, the home builders organisation is expecting a corresponding increase in renovators and contractors want to know how to make necessary "ageing in place" modifications to homes. Jeff Jenkins, director of the NAHB's education unit said:

A lot of boomers have overseen modifications to their parents' homes, but now they're either starting to modify their own homes or at least starting to eye it. It may not be their reality now, but it will be in a few years when they get older.

The modifications generally follow the design guidelines the building industry uses for housing for the elderly. However, different types of homes require different levels of modification.

A one-floor house, for instance, probably doesn't need as much work as a two-story one; perhaps something as simple as better-positioned, brighter lighting and more convenient electric outlets; bigger rocker-style light switches; and easy-to-grasp "C" and "D"-shaped handles on drawers and cabinet doors.

The goal is to make it easier for people with, say, arthritis to grab and use simple household items, and to prevent falls. A floor mat is recessed to reduce the chance of an elderly person tripping on it. Grab bars, step-in showers, and entrance ramps are other recommendations.

As the house gets older and more elaborate, so too does the job of making it safer and more user-friendly. An old, two-story home with lots of nooks and crannies can be expensive and tricky to modify.

A simple enough idea such as moving the bedroom from the second to the first floor may also require a wholesale renovation of the ground-floor bathroom - often just a water closet that should have a walk-in shower, grab bars, smaller vanities for wheelchair accessibility, and other features. That alone can run into the tens of thousands of dollars.

Other items may include taking down non-load-bearing walls - or even adding walls - to make rooms large enough for master bedrooms or to create new master bedrooms out of living rooms.

Brands in the home improvement sector are putting more effort into developing emotional connections with consumers to take advantage of the "IKEA effect", according to a recent report by Interbrand. Top brands are maintaining their relevance by creating meaningful experiences for their customers and communities.

Shoppers are encouraged, inspired, and supported with service and instruction. Internationally, companies continue to experiment with the best way to expand.

While promotions and low-price offers are still the norm, brands in this sector are emphasising the high value consumers place on products they partially create and projects they do themselves. High service levels are a must as well as mobile technology, which gives customers and store staff access to more products and information.

Interbrand has identified some innovations and opportunities for the home improvement industry

Engage the imagination with 3D visualisation

Latin America's Sodimac created a mobile app that lets shoppers view its catalogue in 3D. Thailand's HomePro helps aspiring home improvers through its in-house design consultation service, which features a 3D system for improved visualisation.

Collect shopper insights continuously

French retailer Leroy Merlin launched a Housing Observatory to identify new trends and spur innovations. Insights gained into its customers' lives will help the brand inspire its customers and adapt to local markets.

Differentiate via display techniques

Recognising that big box home improvement stores can be hard to shop, US-based Lowe's has changed is merchandising strategy to focus on highly innovative products, significant values, and its exclusive private and national brands. To drive high-margin sales, the retailer also revamped its seasonal promotional spaces.

Dynamic price tags lure shoppers

French DIY chain Castorama is using dynamic price tags to change the price of a product based on demand and time of day. Not only is the task of manually adjusting price stickers eliminated, the electronic tags can be changed in real time. Items can be made cheaper during off-peak hours to encourage shoppers to visit at those times.

Overall, Interbrand expects the global home improvement retail market will continue to grow, while its leading players get even better at meeting consumer demand.

In Australia, the company says Bunnings continues to capitalise on Australia's fascination with home improvement. Interbrand says it has built its reputation on community and authenticity.

It believes that Bunnings has taken a big, much-needed step in developing its e-commerce channel, bringing it more in line with the brand's in-store experience. An omnichannel presence will help Bunnings compete against Masters.

Mexico is emerging as a fertile and important market, thanks to its growing middle class. The Home Depot is strengthening its existing operations south of the border in the expectation that Mexico is projected to add 14 million homes over the next 25 years.

Despite favourable circumstances based on population growth and an increase in dual income families, The Home Depot has only been successful in North America. It found its big box format to be a logistics challenge as well as a cultural mismatch in both China and South America.

In China, for example, consumers aren't particularly interested in DIY, how-to videos, or in-store remodelling forums. After closing its big box stores in the country, the chain is now shifting its focus to e-commerce in the hopes of winning over younger Chinese customers.

In Latin America, France-based Leroy Martin is one of the largest home improvement brands based on sales, even though it has fewer stores than competitors C&C, Telhanorte, and Sodimac.

Leroy Merlin credits its success to a rich merchandise mix, its online channel, and a clean, unique presentation style. Besides the usual home improvement tools and supplies, the store also carries home furnishings, ensuring that any household project - from renovation to redecorating - has a high probability of ending in a shopping trip to Leroy Merlin.

The biggest home improvement brand in Asia is Thailand's HomePro. It stands out in an increasingly competitive market with an extensive footprint, along with a commitment to genuine customer service that helps do-it-yourselfers make more informed choices and get better results.

It builds affiliations through its quirky advertising as well as clever promotions like The Other Side Project, which was created to help local poor people who use sidewalk billboards to build or repair their street shelters.

In this dual-purpose campaign, HomePro created billboards with its advertising message on one side, and wallpaper and a fixture - such as a shelf, reading light, or closet rod - on the other. As soon as the campaign ended, locals were free to use these signs to improve their homes.

This year's Cologne International Hardware Fair saw 2,783 exhibitors from 53 countries and around 50,000 trade visitors from 136 countries.

The product trends at this year's event are towards better efficiency, better ergonomics and greater use of digital technologies. Electrical tools now make much more use of weight-saving brushless motors, combining better performance with reduced maintenance requirements.

When combined with improved battery technology, this results in easier-to-work conditions. Similar features can also seen in the lighting sector.

The latest LEDs (light emitting diodes) have major performance gains, now using up to 80% less energy than conventional fluorescent lighting with no reduction in light emissions. They have a service life of up to 50,000 hours.

The new accessories on show included lockable upholstered compartments and powerful disc brakes for tool carts. Ladder safety can now be improved with clip-fit anti-slip pads.

There is also increasing use of mobile phone technology to regulate technical functions in buildings of all kinds. This ranges from controlling APP functions in sockets, through to energy saving radio control of shutters and awnings.

For the second time, trade fair organisers presented the Eisen 2014 CSR Award sponsored by German steel company BHB. It is an award that recognises Corporate Social Responsibility. It was given to IZAR Cutting Tools and Knipex Tools.

The Innovation Award sponsored by ZHH, the Central Association of the Hardware Trade was given to Danish company Alulock for its unique system for building scaffolds; construction supplier P.F. Freund & CIE; Gedore Tool Center and Leica Geosystems.

Commenting on the positive trends in relation to this year's exhibitors and visitors, the chief executive of the Cologne Fair Katharina C. Hamma says:

We are absolutely delighted that this year the supply-side grew by 4.5% in comparison with the previous event. The number of trade visitors remained stable and we had a wider international mix.

The Cologne Fair conducted its usual survey of exhibitors and visitors to determine their perceptions of this year's event. The results show that almost 73% of respondents confirmed they are directly involved in purchase decisions; 79% said they were satisfied or very satisfied with the range of goods on show; and 78% of trade visitors were satisfied or very satisfied in terms of having reached their objectives in attending the fair.

Furthermore, over 90% of respondents said they would probably or definitely recommend attending the fair.

J. Wolfgang Kirchhoff, owner and general manager of the Kirchhoff Group and chairman of the hardware fair exhibitors' committee, says:

The mood in the hardware industry is good. Fortunately, this now holds good for countries such as Spain and Greece, where it looks as if they have finally turned the corner.

Rainer Langelüddecke, general manager of the FWI Manufacturers Association shared this view:

This year's hardware fair was an excellent trade show. This was probably due to the good mood in the market; the forecasts for 2014 are generally optimistic.

The next Cologne International Hardware Fair will be held from 6-9 March 2016.