Material cost hike putting the bite on builders

As the building and construction industry continue to bear the burden of COVID related workforce and supply chain impacts on their businesses, many are also in the fight of their lives to stay afloat with contractual obligations leaving them to absorb massive material cost increases on their own.

Victorian builders are facing increases in some product lines by nearly 50 per cent compared to a year ago as supply chain constraints and the lack of flexibility in fixed-price contracts continue to bite and hurt builders.

Spokespeople for peek building lobby group, Master Builders Victoria, have consistently said that the best way to protect consumers and help prevent further insolvencies in the building and construction industry is to protect builders.

MBV CEO Rebecca Casson said that many builders are struggling with the ongoing impacts of fixed price contracts with no ability to pass on increases to consumers through cost escalation or rise and fall clauses.

“If Victorian builders cannot pass increases onto clients, there is a risk of insolvency, and clients might end up with half-finished homes,” she said.

The Australian Bureau of Statistics has recently revealed the latest price increases for construction materials for the June quarter, further highlighting Victorian builders’ cost pressures.

MBV analysis of ABS data in the last three years shows that steel products have risen by 54.2 per cent, electrical equipment by 39.4 per cent, and timber, boards and joinery by 37.8 per cent.

Ms Casson said that historically, the average cost of materials would increase yearly, “However, from the March 2020 quarter, the growth rate in materials has experienced steady increases.”

“For example, the steel price from June 2017 to June 2019 increased by 6.4 per cent,” Ms Casson said.

“However, the steel price from June 2020 to June 2022 increased by 57.2 per cent.

“This is almost nine times faster in two years, demonstrating the cost pressures Victorian builders face.

An MBV statement said that the ABS figures are only an average of the price increases for Melbourne, and that in most circumstances, builders are seeing higher increases more regularly.

Supply chain constraints, delayed payments from clients and lack of bank support, regulatory reform, rising inflation, energy cost increases, COVID-19 isolation requirements, and skills shortages are other impacts affecting the profitability of Victorian builders and constructors.

Ms Casson said she feared that some building and construction businesses would exit the industry because market conditions and contract constraints were too demanding.

“That’s why MBV has continued to advocate to the Victorian Government to include rise and fall clauses in domestic building contracts,” she said.

“This has been implemented in Western Australia, South Australia, and Ireland for commercial contracts.”

In the meantime, Ms Casson said that MBV encouraged open communication between builders and clients to avoid any building issues or delays.

“MBV urges all clients to be kind and patient with builders and to understand that some builds will take longer and be more expensive,” she said.

“Everyone is doing their best in some exceptionally challenging circumstances.

“MBV remains confident that the building and construction industry will overcome these challenges and continue to be the cornerstone of Victoria’s economy.”