The long-suffering building construction industry might finally find it easier to maintain a profit with lower construction costs providing hope for the future.
The pandemic ushered in an era where Australia’s builders are mostly operating on tiny profit margins, if any, with the highest rate of insolvencies in years.
But now supply chains are running more smoothly and the costs of building materials like steel and timber are easing.
CoreLogic index figures show the cost to build a typical home grew by just 0.7 per cent for the June quarter, which is the lowest it has been since COVID times.
John Bennett is the construction cost estimation manager at CoreLogic and told Australian Property Investor that the significant price increases of the past 12 months had subsided, but there was still some volatility in the industry.
“The latest index figures will bring some comfort and reassurance to the beleaguered building and construction industry as we’ve seen two consecutive quarters of growth more in line with long-term averages,” he said.
According to Julian Coppini from property developer Oliver Hume, building construction costs urgently need to fall to restore confidence in the industry.
“Firstly, we need to give mum and dad purchasers confidence that construction cost pressures are abating, as feedback from our purchasers confirms nervousness that builders – notwithstanding the fixed price contract arrangements – will put their hand out for more money or potentially go bust in a rising cost environment,” he told API.
“We believe this has been a major contributing factor in the established housing market performing much stronger than the off-the-plan market.
“Secondly, due to the aggressive interest rate rises, we are aware that borrowing capacity has been reduced by more than 30 per cent. This, combined with rising construction costs, increases the shortfall in funds required by a purchaser, therefore, stability in these cost pressures can only be a good thing.
“Thirdly, as noted above regarding fixed price contracts, stability in costs will ultimately mean less builder collapses because the builder will actually be able to complete the construction cost at the agreed fixed price.”
The cost of building a new home has jumped by around 20-30 per cent in most areas in the country since 2020 but some of the worst hit places such as Brisbane have seen increases up near the 40 per cent mark.
So, while the stabilising construction costs will be a welcome relief for builders, many are still struggling trying to find enough workers to complete projects.
“Over the past quarter there were 33,100 job vacancies in the construction industry,” Ray White chief economist Nerida Conisbee told API.
“This however is a reduction from the 40,000 vacancies 12 months ago. The number of jobs being created has slowed down. Migration has also helped with labour supply.”
Ms Conisbee said the building construction industry was likely to see the labour shortages improve over the coming months.
“A shortage of labour is likely to continue to be less of an issue over the next year,” she said.
Client relationship manager at The HMO Property Co Jose Marco Williams said Australia needs quality, safe, clean and affordable housing to attract more foreign workers to help easing labour shortages.
“The current situation was obviously exacerbated by Covid lockdowns and government interventions that allowed businesses to trade while insolvent,” he told API.
“Many builders incurred significant losses and now are in a position to recoup their profits by increasing their production costs and somewhat justifiably so.
“Stabilised construction costs will play a major role in addressing the industry woes.”