Even bigger bill shock ahead from building costs

The cost of building a home in Australia is through the roof, and word on the ground is that it's going to get higher yet.

Residz Team 7/18/2022 2:35:19 AM 3 min read

If you’ve had a quote from a builder lately you’ll need a stiff drink and a good lie down. The cost of building a home in Australia is through the roof. Now there’s proof it’s at a record-breaking high outside of the year the GST was introduced, and speculation is it’s not finished rising yet.

An expensive 12 months for home builders

CoreLogic’s Cordell Construction Cost Index (CCCI) for Q2 2022 shows the national residential construction costs increased 10% over the 12 months to June 2022. The only time it’s been higher (by only 0.2%) was around the introduction of the GST.

Pre-pandemic the average cost to build a new house in Australia was about $320,000 but by April 2022, updated ABS data revealed it had shot up to an average $473,000, according to Yellow Pages. It reports Sydney is the most expensive city in which to build a house, Perth the least.

The CCCI report is a quarterly index measurement that tracks the rate of change of residential construction costs. The modelling covers ‘typical’ new residential builds most common among newly built Australian homes.

Building costs rising faster than inflation

In this CCCI report we see that every quarter over the past year saw growth in construction prices, with a 3.8% surge in the three months to September 2021 (due to lockdowns having an effect on supply chains). It’s eased off a little, but the first two quarters of 2022 have both had growth rates of 2.4%.

“Unfortunately, building costs are actually rising faster than inflation across all major Australian markets for a few different reasons,” writes the Yellow Pages in its article How much does it cost to build a house in 2022?

Raw material costs, labour shortages, and the rain are some culprits

CoreLogic Construction Cost Estimation Manager, John Bennett, said Cordell figures show the cost of metal, structural steel, reinforcing, fixings and fencing are under pressure, adding to rising prices across timber products.

"This is on top of labour availability and overheads challenges in the construction industry. Added to these are the number of major weather events and the backlog of construction approved during COVID", says CoreLogic Research Director Tim Lawless.

“Construction costs have increased more than 25% over the past five years,” says Mr Lawless in CoreLogic’s research news. This has “a knock on effect to builders' margins, budget blowouts for customers not on fixed price contracts and home owners waiting for their projects to finish or even start in many cases.”

He says the ‘short to medium-term outlook for the construction industry remained challenging’ with ongoing labour shortages, lack of materials, high fuel prices, and the pressure of general inflation.

“All these factors have an impact and are likely to push building costs higher for some time yet,” he said.

Ways to save on building costs

There’s not a lot you can do about inflation and supply issues. Builders have no choice but to pass on rising costs of materials and labour. But, here are a few things you could keep in mind:

Try to engage a builder who you can talk to, and who’ll try to make the effort to get the best prices for you. Keep up communication with your builder and/or architect.
Put the time in at the early part (ie. the planning stage) to make your home as efficient to build as possible, perhaps it will require things to be done a different way. Get familiar with the term “value engineering.” Value engineering is a systematic, organised approach to providing necessary functions in a project at the lowest cost. (Investopedia)
Don’t get too greedy with things that are ‘shiny’ - this can lead to over-specifying.
Be flexible in both timing, fixtures, materials, where you are able to.
Be disciplined on the way through, don’t keep adding and adding features (ie. having extra electrical light fittings built-in versus using floor lamps (installed lighting is expensive to buy and expensive to install).
Sliding doors are an expensive way to put a door in. If they are required, try to get the best prices on them. Similarly shop around, or have your builder shop around, for flooring at the best price.
Get quote after quote.
Try to lock in prices if you can. Perhaps you can do this with tiling and bathroom fixtures. Buy your kitchen appliances early or on sale, and securely store them at a friend’s or relative’s place.

Photo by krakenimages on Unsplash