Home Building Costs Remain Heated

We’re all now familiar with the extraordinary rise in building material and labour costs within the home construction industry, driven largely by increased demand and disruption to supply chains during the covid pandemic.  

Although Australia suffered its first recession in 27 years in 2020, the covid induced boom in demand for better (or bigger) housing helped along by lockdowns and the necessity to ‘’work-from-home’’, has led to a surge in home owners either updating their existing residences or seeking larger homes, or simply relocating for lifestyle reasons. 

As a result of this perfect storm of events, along with the extra government stimulus such as the Home Builder Grant, the increased demand for building materials and trades has forced up the cost of construction.  For materials, the greatest impact has been on steel and timber, while for trades the cost to engage a carpenter, plumber or bricklayer has increased substantially.  The recent occurrence of extreme wet weather and floods will only add to the heated demand and likely lead to a blowout in wait times for both the supply of materials and available labour. 

It has been reported the annual increase in housing construction costs to March 2022 surged between 13.4% in Sydney and up to 16.8% in Melbourne with the national average across all capital cities being 15.4%.  Some of the largest cost increases year-on-year have been for steel (42.1%), timber (20.6%), electrical equipment (13.9%) and ceramic products (12.6%).  Regarding timber, which was already impacted by the 2019 bush fires which hit some plantations, the building industry has warned that unless new timber plantations are planted by 2030, there could be a national shortage of 250,000 house frames by 2035. 

“The national average increase in house construction costs to March 2022 across all capital cities is 15.4%”

Producer Price Index, Australian Bureau of Statistics

Apart from increasing the cost to construct a new home or carry out renovations, the impact of these soaring costs has led to builders turning away from traditional fixed-price contracts and instead insisting on either cost-plus contracts or including an extensive list of provisional cost items in fixed-price contracts.  There have also been recent instances of builders requesting as much as an extra $50,000 from owners to finish building their homes due to cost increases during their build. 

A number of home builders have already collapsed due to cashflow problems, with notable companies being Probuild, Privium, and Condev.  At the time of writing, there are some concerns regarding Metricon, the largest home builder in Australia with around 4,000 homes under construction.  Given the size of this company and its potential impact on the industry, it would be considered ‘too big to fail’ and have significant industry repercussions if it does.

Ultimately, this rise in construction costs has helped fuel (although not entirely) the increased value of new homes and also established homes.  Acumentis can assist with determining the added value of additions or renovations to all residential property, and we have valuers covering all metropolitan areas in Australia’s major capital cities and main regional markets. 

Gerard Clarke
Director – Risk & Performance
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