RENOVATING DURING A SOARING BUILDING MARKET SERIES: What's the Problem?

We have fielded?a lot?of questions lately about the state of the building market and what that means for everyone involved. It can be a complicated issue, with many layers of complexity and possible outcomes. This has prompted us to put together our ‘Managing Your Interior Design Project During a Soaring Building Market Series’ to hopefully answer some of the more common questions and put our clients’ minds at ease.

First up, we are taking a closer look at ‘What’s The Problem?’.

SO, WHAT’S THE PROBLEM?

House prices have been rising dramatically in Australia over the past few years. But it’s not just existing property that’s costing Aussies more. It’s also the cost of building new homes and units. We currently have a soaring building market, and it’s something that’s causing many builders, suppliers, homeowners and countless other stakeholders sleepless nights and anxious waits.

Before we take a look at what the experts are predicting for the future, let’s take a closer look at what the problem is right now.

Construction Costs on The Rise

It’s no secret that construction costs are soaring. In fact, CoreLogic’s Cordell Construction Cost Index (CCCI) for Q1 2022 showed that national residential construction costs?increased by 9%?over the 12 months to March 2022 – the highest annual growth rate on record outside of the introduction of the GST. The CCCI quarterly growth rate also reaccelerated in Q1 2022 to 2.4%, more than double that of Q4 2021 (1.1%).

The Cordell data shows that timber, metals and imported products are driving much of the rise in construction costs, with cladding, decking, structural steel, fixings and metal components all affected.

Building Material Shortages

The building industry first began to experience a shortage in materials when COVID-19 hit and factories around the globe were forced to close. Shipping delays began to appear and, of course, rising fuel costs and increased shipping fees have only further contributed to the problem. Because there were fewer factories open, those operating experienced increased demand, which inevitably led to longer wait times and further supply shortages.

Skilled Labour Shortages

There is also a significant skills shortage within the construction industry. As a result of border closures in recent years, building companies have experienced serious problems trying to hire workers from overseas. As the demand for tradies has increased, the cost of local labour has been said to be on the rise. Several national building companies have also shut down amidst the pandemic.

High Market Demand

The federal government’s HomeBuilder scheme was designed to help stimulate the construction sector. Under this scheme, the government would provide qualifying Aussies with a grant towards building or buying a new home, or to substantially renovate an existing home they planned to own and occupy. This has led to increased demand for new builds and renovations, and increased pressure on labour and building supplies.

The Master Builders 2022 Outlook predicts that?38,000 new homes?will be built in Queensland in 2022 – an almost 20% increase on the 32,000 commenced in 2019 (pre-pandemic). Master Builders Deputy CEO Paul Bidwell said that builders face ‘enormous and unprecedented challenges’ in delivering the expected high numbers of new homes. ‘The ongoing price hikes and trade and material delays are a serious thorn in the industry’s side, and we expect the issue to run right through 2022.’

WHAT DOES IT MEAN FOR YOUR INTERIOR DESIGN PROJECT?

Of course the uncertainty of a soaring building market has significantly impacted those looking to build or renovate their home or embark on an interior design project. Clients can face long delays in their projects as well as the potential for their job to run over budget.

WHAT DOES THE FUTURE LOOK LIKE?

Many experts are warning us to be prepared for the current situation to continue, particularly a shortage in building materials as supply catches up to demand.

‘Considering the record number of houses approved for construction during the HomeBuilder grant along with additional rebuild and repair work from the recent floods, demand for construction materials is likely to remain high. At the same time, supply side challenges persist. A shortage of key materials such as structural timbers and metal products along with higher fuel costs, and labour shortages, is likely to keep upwards pressure on building costs for some time yet’, says?CoreLogic Research Director Tim Lawless.

While our soaring building market doesn’t sound like it’s about to settle just yet, there are some things you can do to help manage your interior design project. Look out for our next article in the series, ‘How to Prepare for a Home Renovation’ for our advice.