Construction costs have been on the rise over the last 2 years with costs increasing by nearly 25%. Rising construction costs have made it increasingly expensive to build or renovate homes. Homeowners are being forced to spend more on input materials such as concrete, steel, brick, glass, and wood to name a few.
What building materials have increased in cost and why?
Almost every category of building materials has become more expensive. Steel products are leading the way, jumping 42.1% in the year ending March 2022, Australian Bureau of Statistics figures show.
The key reasons for these increases have been inflation in the prices of key raw materials, an increase in fuel costs and oil costs, and a shortage in the supply of certain building materials.
The cost of steel has jumped by a whopping 42.1% in the 12 months ending March 2022
The cost of steel has realized a significant price increase over the past year due to a combination of higher raw material prices (iron ore, coking coal) and tight global supply. In addition, steel manufacturers have raised prices to offset lower volumes of production.
The cost of timber, board, and joinery has increased by 20.6% in the 12 months ending March 2022
The cost of timber, board, and joinery has significantly increased in price due to rising demand from builders and homeowners. The cost of timber has also been affected by fluctuations in the international market for softwood lumber.
The cost of cement has increased by 7.1% in the 12 months ending March 2022, why?
Cement is used in almost all types of construction including residential buildings, commercial buildings, industrial buildings, roads, bridges, dams, and other infrastructure projects. The main reason for the increase in cement costs is that there is less cement available than usual because of higher global demand from China and India. The raw materials used to make cement have increased significantly over the last 5 years.
Bricks have increased by 25% since 2017
Bricks are (obviously) one of the most used building materials in Australia. Brick manufacturing is highly labour intensive and requires skilled tradespeople to produce quality bricks. The price of bricks has increased significantly due to significantly higher wages for skilled tradespeople, higher fuel costs, and the increase in demand relative to supply whereby brick manufacturers have had to raise prices to meet demand.
The cost of glass has risen by 14.1% in the 12 months ending March 2022
There are many reasons why the cost of glass has increased. One reason why glass has gone up is that the prices of raw materials such as sand, chemicals, water, and limestone used in the manufacturing of glass have increased since 2017. The manufacturing process of glass is extremely energy intensive, and the cost of electricity has increased since 2017. Rising labour costs and shortages in the availability of glass across the globe have also explained the increase in overall prices.
Source: ABS Consumer Price Index and HIA
There is a shortage of skilled tradespeople
The building and construction industry is under incredible pressure, according to the head of the Building Industry Association of Australia. In a wide-ranging interview with Business Insider Australia, Stephen Saunderson said the sector was facing an "unprecedented level of stress" due to a combination of factors including rising costs, declining wages growth, and a shortage of tradespeople.
Mr. Saunderson said the current situation had become particularly tough for tradies, with many having to compete against cheaper labour overseas. But he said there were some positives. For one thing, he said the number of building and renovation projects underway across Sydney was up 50% over the same period last year. He added that while the cost of materials such as steel and cement was increasing, the price of labour remained relatively stable.
He said the trade could benefit from a boost in apprenticeship numbers. While the government had announced it would increase funding for training programs, Mr. Saunderson called for more to be invested in vocational education.
"We're looking at about $1 billion worth of infrastructure spending next financial year... I think it's important that we invest in the future of our workforce," he said.
Source: Business Insider Australia
What do these soaring costs of the building mean for homeowners in Australia?
If you're planning to build a new home, you'll need to plan and make sure you can afford the higher costs or look for cheaper alternatives. You may also find yourself having to pay more than expected when buying materials. For example, where you may expect the cost for cement to be $100 per square meter, you might end up paying around $145 per sqm due to higher costs.
If you're planning to renovate an existing home, you should expect to see similar increases in material costs. If you have appointed a builder for your renovation, you should ensure that you use a trusted builder that can work consistently and work towards a set timeline. If they don't, you could end up paying more money in the long run.
Cutting costs?
You can cut costs on your project by using alternative building materials and shopping around for the best deals. We also recommend speaking to your builder about other ways you can save money on your build or renovation and leverage their expertise.
Prefabricated components are another way you can keep your renovation costs down. These are often made from recycled materials and can help reduce costs, reduce waste, and save on energy costs. They can also provide a faster turnaround time. However, if you choose this route, you will need to factor in additional costs associated with shipping and installation.
You can also look into using precast concrete panels. These are made from concrete that has been cast in molds and then cured. They come in various shapes and sizes, so you can easily create walls, floors, ceilings, and even roofing. Precast concrete panels are usually much stronger than traditional brickwork and can be used to create a variety of design
While there are ways to cut costs, it's essential to balance those savings with the quality of the finished product.
Our Insights and Advice at RT Edgar
At RT Edgar, we've seen a significant increase in inquiry and demand for already renovated or newly constructed homes. The general feedback from our clients is that the cost of building homes or renovating at this time is too unpredictable, so our clients are avoiding major renovations or new builds and are instead seeking safer havens by investing in high-quality new homes or recently improved homes.
We've listed and sold many recently renovated homes and newly constructed properties whereby many of our vendors have capitalised on the higher costs of construction at this time, selling their homes with multiple buyers and at record prices for these off-market and on-market homes.
For Example:
6 Dickens Street, Elwood
This fully renovated single-level Victorian residence achieved a historical record for the highest price ever achieved in Elwood for a home.
https://www.rtedgar.com/property/6-dickens-street-elwood-vic-3184/51888/
11 Grange Road, Kew
A Christopher Doyle-designed, 6-year-old home built by Davies Henderson achieved an unbelievable result selling only after 3 open for inspections and before its Expression of Interest close date. This home has several underbidders still looking for recently renovated homes. Highest price per sqm sold in 2022.
https://www.rtedgar.com/property/11-grange-road-kew-vic-3101/52863/
32 Sargood Street, Toorak
This magnificent property, recently renovated to the highest standard in one of Toorak’s AAA streets achieved some serious interest and internet exposure with over 60,000 online views on realestate.com.au, domain.com.au, and rtedgar.com. 32 Sargood Street, Toorak was featured on the front page of the ‘Dream Home’ Magazine in the Herald Sun.
https://www.rtedgar.com/property/32-sargood-street-toorak-vic-3142/51963/
G02/36 Clarendon Street, East Melbourne
This 6-year-old apartment opposite Fitzroy gardens, and once an old ballroom, achieved some huge media exposure and generated significant inquiry which ultimately led to a sale price far beyond the quoted range and selling prior to the Expressions of Interest closing date.
https://www.rtedgar.com/property/g0236-clarendon-street-east-melbourne-vic-3002/46355/
83 Caroline Street, South Yarra
This fully renovated Victorian residence achieved a record price for the street.
https://www.rtedgar.com/property/83-caroline-street-south-yarra-vic-3141/46021/
These five examples are representative of a bigger picture of what we are seeing across the market. If you're considering selling, now is a good time to see how much your property is worth in this market.
