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Over the last year, the cost of doing a renovation has increased dramatically. Anyone trying to build a home recently has run against cost blowouts as a monstrous problem. Price pressures on materials and the backlog of construction caused by COVID contributed to this price increase on projects. So when is the best time to do your renovation? Let’s look at the forecasts.
PRICES OF MATERIALS
“A recent report by the Bureau of Labor Statistics states that prices for construction materials increased by around 25% in 2021, a trend that has continued into 2022. Because of the supply chain issues mentioned previously, acquiring the right amount of materials has been challenging.” This year, the materials causing the costs of home projects to increase include copper, lumber, labour, and steel.
While we are unlikely to see the costs decrease over 2022, they will likely level out once the supply chain issues are fixed. Many economists believe that supply chain troubles will continue well into 2023 and possibly into 2024.
According to the Australian Financial Review, “Construction cost growth should slow from 11.5 per cent this year to 5.5 per cent in the calendar year 2023 in Gold Coast alone, while in Melbourne, it will halve from 8 per cent to 4 per cent and drop from 6.9 per cent to 3.9 per cent in Sydney, the quantity surveying firm’s International Report Q2 2022 forecasts show.”
Home-building costs and record petrol prices were one of the critical drivers of the jump in Australian consumer inflation to 6.1 per cent in the year to June, official figures on Wednesday showed. New dwelling prices leapt 20.3 per cent year-on-year.
The Australia Bureau of Statistics (ABS/HIA) recorded an increase of about 40% in prices for reinforced steel, structural timber and steel beams in June this year.
Professional Builders co-founder Russ Stephens said, “the cost to build a residential home had increased a lot more than non-residential or commercial builds due to the larger percentage of timber used, and that temporary price hikes created by supply and demand were not reflected in the reports we were seeing.”
Australia’s typical house build cost has soared more than $94,000 in 15 months, according to an analysis by the Housing Industry Association and News Corp Australia earlier this month. Mr Stephens also commented, “If they’ve had a price quoted that is older than 30 days, they should expect to have that price renegotiated,” he said. He also said consumers would see more builders including rising and fall clauses, also known as cost escalation clauses, in contracts.
“It gives the ability for a builder to pass an increase in the cost of materials on to the consumer,” Mr Stephens explained, adding it was common in other countries, but Australia didn’t typically use them.
SUPPLY CHAIN
Also, lead times for products in construction that were usually 10 weeks have been pushed out to 16-20 weeks. This, along with the need for construction labour and materials after recent flood damage, will enhance existing shortages across the country. The wait time for all materials is incredible, and if you had a budget for your build two years ago, best add 20% to 30% minimum to reflect today’s prices.
DEMAND
Thanks to the housing construction boom, partly due to the Government stimulus in 2020/2021 of the new homeowners grant, building projects now face delays, further driving up construction costs. Several builders have gone broke. Those under a fixed-price contract who factored low material prices into their quotes are now facing the hard truth of working for little or no profit or even at a loss. We have seen many builders hit the wall this year, unable to manage this volatile environment.
LABOUR
The need for contractors and materials has tied up construction resources – i.e., supply is low while demand is high. In this free market of ours, builders have been increasing their margins, if possible, while some entrepreneurial tradies are probably trying to make hay via inflated quotes they can.
SO, WHEN WILL COSTS STOP RISING?
So it appears that there are at least 18 months of being confronted with eye-watering prices. However, remember the renovation process from start to finish can take that long. Permits, design and choosing materials can be extended, so the earlier you are ready, the more scope you have to choose the right builder and timeframe. Also, it is a supply V demand game. Owners are deciding to push pause on their projects because of costs. Builders will still find plenty of work in 2022, but there’s probably less enquiry.