Cost to build a house up $94k since 2021 as it sends construction companies down
Costs to build homes have risen by more than $94,000 in the past 15 months amid warnings half of Australian construction firms could be forced to close.
The Australian Bureau of Statistics revealed in its latest building approvals data that the median price for building a new home was $413,436 in May.
This marks a $94,177 increase in the cost to build a new home more than a year ago when prices averaged just $319,259 in February 2021.
Homeowners typically sign a fixed price contract with their building company the day the project starts – which protects the signer but can sometimes leave the trade in trouble.
Soaring material costs, the Covid pandemic, rising inflation and war in Ukraine have fueled global supply shortages and forced prices to skyrocket, sending many companies into chaos.
Paul Viney, president of the Victorian Association of Consulting Architects, said builders had raised prices to protect themselves.
‘Builders are afraid of making losses [so] they build significant contingencies to ensure they are protected against future cost increases,” he told The Age.
“They set prices through the roof because of that fear.”
The cost to build a home has risen by more than $94,000 in the past 15 months amid warnings half of the country’s construction companies could be forced to close (stock image)
The Australian Bureau of Statistics revealed in its latest building approval data that the average new home construction was $413,436 in May (stock image)
Builders Collective of Australia president Phil Dwyer said rising costs meant prices had risen for raw building materials at the expense of construction companies.
Builders’ margins have fallen from 25 percent to 8 percent meaning the company is struggling to turn a profit and could be forced to close at Christmas.
“This could go up to 50 percent in the next 12 months after Christmas,” he told realestate.com.au.
The Housing Industry Association’s chief economist Tim Reardon said the rising cost of building new homes marked one of the biggest price spikes in decades.
“We’re seeing the fastest rate of growth in the average cost of building approved homes since 1982,” Reardon said.
The cost of $413,436 to build a new tower house was on top of the modest $11,543 cost to build a new one in July 1970.
The increase was due to a combination of factors, including the Covid pandemic, with more residents focusing on building homes during the lockdown.
The spike was also seen in the number of first-time homebuyers looking to build smaller homes and take advantage of the federal government’s HomeBuilder grant.
Over the past year, 85 percent of traders have raised prices with more than half forced to do so in the past three months, according to a report by job site Hipages.
Builders margins have fallen from 25 percent to 8 percent meaning the company is struggling to turn a profit and could be forced to close at Christmas (pictured, ProBuild among construction companies to close)
The costs of metal ore, plastics and wood have consistently increased over the years, but especially through the pandemic as overseas factories have been forced to close for extended periods of time.
The costs of metal ore, plastic and wood have consistently increased over the years, but especially during the pandemic as overseas factories have been forced to close for extended periods of time.
With wood prices up at least 20 percent and metal prices up 15 percent in recent years, workers say raw materials are the main factor driving costs up.
Several construction companies have been forced to close due to soaring material costs, stagnating supply chains, rising fuel and vehicle prices, difficulty finding staff and high wages, all combined to destroy business continuity.
Victoria Wulfrun Construction and Westernpoint Construction Pty Ltd were the latest companies to go into liquidation.
Material prices have been rising steadily since the start of the pandemic, but exploded in April and May last year (average commodity prices – Arcardis statistics)
Analysis by Arcadis shows that major cities are all experiencing increased development costs, with Brisbane being the most significant.
The exception is Brisbane, which has been largely unaffected by the lockdown but is suffering from extended border closures. Our analysis shows that Brisbane will see a 12.1 per cent increase in building costs in 2021,” said executive director Matthew Mackey.
By contrast, Sydney only registered a 1.5 per cent increase and Melbourne 2.3 per cent – neither of these cities experienced an extended border closure to the same degree as Brisbane.
‘We see stronger evidence of cost increases occurring in late 2021 and we expect that to trigger much higher construction tender price inflation in 2022. Indeed, that is already happening in many capital markets due to material, commodity pressures , and biting labor costs. .’
Building contractors FSA Services Group were among the construction companies that collapsed
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