Building costs blowout

ESCALATING freight and material costs coupled with supply shortages, including labour, are adding between five and 10 per cent to construction fees according to local builders.

“Our average contract of $600,000 is now an extra $30,000, we’re only in February and we’re already at 1.2 per cent increase on the cost of materials,” Geelong-based builder Mark Little said.

A director of Little Construction and the Victorian president of Master Builders Victoria, Mr Little now forwards emails to clients from suppliers so they can see the spiraling cost of materials.

“Steel has gone up over 80 per cent, timber has more than doubled, PVC piping has gone up 45 per cent, bricks, plaster, insulation, every component that goes into a build has gone up. The only thing that hasn’t is ceramic tiles.

“Suppliers are saying costs on timber are TBA, so if we don’t know the price how can we tell our clients?”

Mark Little said he’s encountering incredulity as to why construction costs are on the rise, with some suspecting that builders are profiteering.

“Twelve months ago our net profit on a job was about four per cent, and build time was about six to seven months, now our net profit is around about 2.5 per cent and it’s taking nine months.

“They’re calling this the profitless boom because everyone has so much work but no one is making any money.

“It’s a really challenging situation, a no-win situation for both parties.”

It’s all becoming too much for some in the sector, a Surf Coast builder telling this paper that when COVID struck, he decided to walk away.

“I reckon there a lot of people in my position, just going ‘stuff it, I’m out’. The building industry in general is stressful even in the good times, if you throw in not being able to get materials, and them being expensive …”

Along with price lists from suppliers, Mr Little is also forwarding to clients media releases from Master Builders’ head office and press clippings from overseas that illustrate the spread of the issue.

“This is not a problem in Geelong, it’s Australia, the world … everyone is trying to stimulate their economy and the world is turning to their building industry to do it.”

One such stimulus measure in Australia was the $680 million HomeBuilder program announced by the Morrison Government in June 2020 and extended in April the next year.

The scheme provided for around 27,000 grants of $25,000 to build a new home or substantially renovate an existing home, “supporting jobs in the residential construction sector”, the Prime Minster Scott Morrison said at the time.

Eighteen months on Mark Little acknowledges that the scheme has contributed to a boom in the sector, but when coupled with external factors like interruptions to supply chains, labour supply shortages and the rising cost of materials, the industry is experiencing major issues.

“Australia only produces enough timber for around 80 per cent of our houses, so we import 20 per cent. But the industry is currently building at 110 per cent, that’s a 30-plus per cent gap in supply,” he said.

“HomeBuilder has far exceeded anyone’s expectations, but it’s created a very, very challenging environment to manage.

“I reckon we’re going to see much of the same for at least the next six months.”