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Why does it cost so much (and take so long) to build right now?

Why does it cost so much (and take so long) to build right now?

If you’ve been house hunting for a while (and keep missing out on auctions), you may have thought about changing strategies and renovating and/or building a new home instead. And you’re not the only one!

But perhaps after initial enquiries, it’s going to be more expensive than you first thought?! Or maybe you’re well down the track of building, but things aren’t quite happening as quickly as you want.

Here we take a closer look at the increasing costs of building and why things are currently taking a little longer than usual.

 

Why has building a home become more expensive?

In the 2021 calendar year, national construction costs increased 7.3%, which is the highest annual growth rate since March 2005.

Data shows that cost increases are primarily driven by timber, ‘structural timber’ specifically.

“Timber is predominantly produced domestically but excess demand, such as in a boom year like 2022, is largely sourced from overseas markets,” says Mr Devitt, Economist for The Housing Industry Association (HIA).

In the final quarter of 2021, the value of select wood imports reached their highest level on record, giving a strong indication of just how much construction is going on across the country.

Other segments of the market remain volatile too, with increasing pressure currently on metal costs.

“With some materials such as timber and metal products reportedly remaining in short supply, there is the possibility some residential projects will be delayed or run over budget,” explains CoreLogic research director Tim Lawless.

 

Why does building a home now take so long?

Well, if we take into account supply issues with materials and combine this with strong number of building approvals for detached housing, it’s not hard to see why things are taking longer. In 2021, there were 150,000 building approvals – a massive 26% increase from the prior year.

We’re also starting to see delays creep into the approval process. Councils and Government bodies are taking longer than usual to issue approvals – given the influx of applications they’re trying to get through. This of course delays the commencement of projects, interferes with the schedule of the builder, and creates frustration for you as the one trying to get started on your build!

The increased construction activity may be due to a number of reasons. Many buyers have been squeezed out of the established property market and others want to upgrade their homes after extended isolation and lockdown periods.

Unfortunately, given the level of construction activity, experts believe things won’t be slowing down anytime soon. The “’boom is set to keep builders busy this year and into 2023,” says Mr Devitt.

“With such a large rise in construction costs over the year, we could see this translating into more expensive new homes and bigger renovation costs, ultimately placing additional upwards pressure on inflation.” Mr Lawless says:

 

If you’re planning to build, what can you do about rising cost of materials and increasing timeframes?

Given these things are happening across the board, on the whole, there’s not much you can do about it.

However, there are a few things we suggest (which are good things to keep in mind for any build/construction project):

  • Ensure you have a fixed price build contract – this means you’re legally agreeing to a build price before construction commences. Typically with a fixed price contract, any increases in materials cannot be passed on to you.
  • Make sure you understand all clauses in the contract – there may have been clauses added to deal with changing material prices (e.g. ‘a rise and fall’ clause), so you need to check for these. Also ensure you understand the ‘prime costs and provision sums’ clause, as this is another way builders can try and protect themselves against cost increases.
  • Do your research and ensure you select a reputable builder
  • More cash is always better than less cash – if you can manage it, plan to have cash left over once your build is complete. Things always come up that you haven’t considered, and having a cash buffer can significantly reduce the stress involved with building.
  • Plan on it taking longer – even when things weren’t so busy, building (and even renovations) always take longer than you think. ALWAYS.
  • Firm up your finances before you sign anything – we can help you with this part. Just leave your details here and we’ll be in touch to discuss your enquiry further.

 

 

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