Spiraling Construction Costs | No end in sight

Building costs, labour shortages and inevitable delays continue to strangle Australia’s construction industry.

Australia’s construction industry is continuing its downward spiral in coping with the current challenges and market sentiment is reflecting a pessimistic outlook which is shared by all entities across the building sector. There appears no quick fix solution in sight for this crisis, with many builders floundering to push their way through the ever-increasing challenges in order to stay afloat.

Suppliers, builders and the many thousands of Australians who are stuck in the building or renovating process continue to face frustration, disappointment and financial hardship in navigating their way through this difficult situation.

With the release of new quarterly data, the latest statistics indicate that this problem is not easing and it appears certain to continue for some time yet. One of the contributing factors to what we are experiencing now is the result of the extreme weather events experienced in many parts of Australia and the damage and destruction caused to homes, buildings and infrastructure. Concerningly, more of this type of potential weather is forecast to occur in certain States in the months ahead.

There are significant shortages in the supply of all building materials resulting in a stranglehold of availability coupled with exorbitant price hikes and delays.

Industry property analyst CoreLogic has recently released their report (Source: Cordell Construction Cost Index) which highlights the rising cost of construction (materials and labour) nationally. The report shows increases have been felt around the country with the September 2022 quarter experiencing the largest increases since the GST impact in 2000.

All trades within the construction workforce are struggling to meet expectations and satisfy the burgeoning demand. The scarcity of skilled labour has created an unsustainable increase in wages with these increases being passed down the line to the consumer.

Builders are faced with multiple factors affecting their cash flow given the cost escalations and shortages of both raw materials and labour, and as highlighted by CoreLogic, there is also the added layer of increased overhead costs and outgoings for items such as fuel, waste disposal fees and professional fees. Profit margins have been eroded and completion dates unachievable, resulting in many projects no longer being a viable commercial arrangement. The number of construction businesses entering insolvency continues to escalate, reaching levels not seen for many years.

Statistics indicate that this problem is not easing and it appears certain to continue for some time yet

Acumentis has specialist involvement in undertaking valuation work for insurance/replacement cost estimate purposes and we work closely with strata clients in determining their sinking fund forecasts/maintenance plans. Closely aligned with this is taking into consideration construction cost escalations and the impact these will have on future strata levies and insurance premiums hence it is critical to project a realistic estimate of costs. To facilitate adequate capital expense planning and counter future risk and expense in the case of say sinking forecast fund estimates, it is imperative to undertake regular reviews of your sinking fund. At Acumentis we recommend you do this annually, given current turbulent times and market movements. Our team is dedicated to helping clients navigate the challenges they may be facing and ensuring they are fully informed to best assist them in their particular circumstances.

Nathan King
National Director – Advisory, State Director – WA Operations
— Perth Property Valuers
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