Construction costs rising rapidly

Most builders are bearing the brunt of construction cost increases, especially those in fixed price contracts, and some have been forced to the wall.

Supply shortages and the ever-increasing costs of key materials, such as timber and steel, have been two of the most pressing issues facing the building and construction industry over the past two years.

According to Master Builders Australia, the cost of building a new home rose by 20 per cent in 2021.

Adding to the pressures, the federal government has imposed a 35 per cent tariff increase on imports from Russia and Belarus, and while these countries account for a small portion of Australia’s timber imports, it will impact the price of laminated beams used as structural supports in new house constructions.

A survey last year on material shortages by Master Builders Australia revealed that 98 per cent of Victorian builders had been affected by delays and price rises, with wait times for some materials blowing out to six months.

CoreLogic’s Cordell Construction Cost Index (CCCI) for Q1 2022 shows national residential construction costs increased 9 per cent over the 12 months to March 2022, the highest annual growth rate on record outside of the introduction of the GST (10.2 per cent over the year to March 2001).

The CCCI quarterly growth rate reaccelerated in Q1 2022 to 2.4 per cent, more than double Q4 2021 (1.1 per cent) but below the 3.8 per cent surge over the three months to September 2021.

CoreLogic construction cost estimation manager, John Bennett, said Cordell data shows timber, metals and imported products are driving much of the growth.

“Timber costs continue to rise, with cladding, decking and other timber items affected,” Mr Bennett said.

“Steep rises in metal prices are also now flowing through to the market, with structural steel, fixings and metal components hit hard.

“We continued to see volatility in the rest of the market, with imported products the most vulnerable due to elevated shipping costs.

“Rising fuel costs are also on the radar and we have continued to see further increases in the cost of other materials.”

CoreLogic research director Tim Lawless said the annual change in construction costs is approaching double digits, with the impact multi-layered.

“Construction cost growth adds a further element of uncertainty to new building projects and renovations as well as inflationary pressures to the economy,” Mr Lawless said.

“While the most obvious impact from high residential building costs are with builders, new home buyers and renovators, another important consideration is the sum insured by home owners.

“With construction costs up more than 25 per cent over the past five years, it’s important for home owners to reassess their insurance terms and make sure they are adequately covered should they need to make a claim.

“A shortage of key materials such as structural timbers and metal products along with higher fuel costs, and labour shortages, is likely to keep upwards pressure on building costs for some
time yet.”