The Australian construction sector has recovered considerably since the pandemic hit in 2020. Demand for home building has surged to record levels. However, the industry is struggling to meet that demand and those difficulties are expected to continue well into the future.
One large, and well-documented, problem is the way the pandemic has impaired supply chains, causing delays in completing construction projects. But other factors are challenging the industry as well. If you plan to commence building a new home in 2022, prepare yourself for a major downturn in the construction industry over the next few years, as home builders struggle with the rising costs of raw materials and workforce shortages, along with those supply-chain delays.
Rising Costs And Shortages Of Construction Materials
Australia is facing many shortages in construction materials, including timber, bricks, cement, steel, paint, electrical components, and roofing supplies.
This is the result of three key issues:
- The government’s popular HomeBuilder grant contributed to exceptional surges in construction demand.
- The huge shortage of timber has been caused, in part, by the national bushfires. The scarcity has driven the price of timber up more than 40% and it is expected to cause building delays into 2023.
- Countries worldwide – not just Australia – used the building and construction sector as a focal point for economic recovery during the pandemic, so global supply chains are now stretched.
The gap between demand and supply of raw materials is continuing to adversely affect delivery, cost and profit margins for the construction sector. You can expect to pay higher prices and deal with supply shortages if you build a home this year or in 2023.
The Australian construction industry has an undersupply of skilled and qualified workers. Companies across the country are struggling to find project managers, bricklayers, carpenters and electricians. Wait times and costs are expected to increase even further because of these skill shortages.
Construction Delays Extend Deadlines
A survey by Master Builders in September 2021 found that lead times for most building materials remained much longer than before the pandemic. One year later, the massive supply-chain issues persist. Especially in the case of timber and steel, builders are unable to provide a definite time frame for when the materials will arrive. The delays have some projects being delivered up to six months behind schedule – and that’s extremely costly. Just a couple of months’ delay in completing the construction of a home can cost the aspiring homeowners $6000-$7000 in additional rent, along with the continued interest-only payments on their construction loan, which lead to a greater overall cost for the life of the loan.
Bottom line, your building costs could increase dramatically from initial estimates if you plan to begin construction of your home in 2022 through a contract builder or as an owner builder. You will also have to anticipate some delays. Many builders are even going bust as materials remain difficult to source and expensive. This trend is expected to continue, which could crush the hopes of people who planned to build their dream home. When builders go under amidst construction, homeowners can be stuck looking at their home sitting half-built and their life savings spent.
Does Buying An Established Home Seem Like A Better Option Right Now?
Considering all these challenges, you may well decide to postpone building for a few years. But if you don’t want to wait, one alternative is to buy an established home. And house prices are on the decline. The June 2022 Quarterly House Price report by Domain states:
- House prices have dropped across Australian states for the first time in two years, as the market has finally slowed down countrywide.
- Brisbane has recorded its first price decline since April 2020, near the beginning of the pandemic, while Sydney and Melbourne prices have now dropped more than 1.5% from their record high.
- Unit prices fell over the June quarter across most areas of Sydney but they have still outperformed house prices.
The outlook for different areas of the country varies. PropTrack expects continued price falls in Sydney and Melbourne over the rest of 2022. On the other hand, Brisbane, Adelaide and some regional parts of the country are expected to outperform, aided by relative affordability and shifting trends among homeowners.
Unfortunately, while the initial price tag for an existing home is on the way down, rising interest rates are driving up the cost of monthly repayments. The Reserve Bank raised the cash rate target for the first time in more than a decade in May and has raised it again each month since – pushing the case rate from just .1% to 2.35% as of September, in its attempts to curb inflation. Interest rates are expected to continue to climb for at least the rest of this year, meaning rising monthly repayments. People looking to buy may also find that their borrowing power has gone down, whether they choose to buy an established home or build a new one.