The demand for building new homes and major renovations skyrocketed during the covid-19 pandemic, especially after the release of the Australian Government’s HomeBuilder stimulus program.

Recent figures published by the Australian Bureau of Statistics (ABS) illustrated that there were 98,450 residential dwellings under construction across Australia in the September quarter. 

“We are seeing a slowdown in approvals at the moment, but we are seeing more and more homes flowing into the actual construction phase,” says Tim Lawless the head of research at CoreLogic.

It is becoming more difficult to get an accurate understanding of exactly how many homes are also being renovated or repaired. However, anecdotally, that work is following the same trajectory as demand for new builds.

“Clearly, the recent flood event is going to amplify these issues we’ve seen across the country,” says Mr. Lawless.

The surge in demand is crashing head-on into continuing supply related issues.

CoreLogic’s latest data on the cost of construction is also being released today. It shows prices rose another 2.5 percent in the March quarter, taking inflation hitting the industry to 9 percent in the space of 12 months.

“While this isn’t unprecedented, the last time we saw construction costs rising this quickly was way back when the GST was introduced. Structural timbers and steep rises in metal prices are the biggest pain points, while costs for other materials are volatile, especially imported goods where shipping costs, along with supply shortages, are supporting higher prices. We’ve got higher material costs, higher fuel costs adding to transport costs. And, of course, higher labour costs as well,” says Tim Lawless.

Mr Lawless is expecting that things will get worse before they gets better. So do people carrying out the work.

Even in states where there aren’t urgent flood repairs in the pipeline, the pressures are still significant and are continuing to increase.

In the regional Victoria town of Shepparton, the covid-19 housing boom added to a backlog of demand for repairs to properties damaged by the bushfires a few years ago.

Walking through an almost-complete property, Hotondo Homes Shepparton sales manager Jody Mintern points out all the places where the company is facing delays and rising costs on its jobs.

The timber frame took several months to source, while the kitchen is still waiting for appliances from overseas. The flooring is taking its time to arrive, meaning the ground remains just poured concrete.

“We just didn’t see it coming. I don’t think anybody did. Five years ago, it would have taken six months to build a house like this. But now it can take up to 12 months to get it to completion,” says Jody Mintern.

It’s not just explaining this situation to anxious clients that’s extremely difficult.

As costs rise quickly, the builder is struggling to maintain its margins on quoted contracts with fixed prices.

There have been several major building companies that have already gone bust during 2022 including an unrelated Hotondo Homes franchise in Hobart. Unfortuantley things are set to continue to get worse as there are major concerns more construction businesses will collapse as a result of the industries ongoing “profitless boom”.

“It is an inherent risk in the industry,” says Hotondo Homes Shepparton sales manager Jody Mintern.

Ms. Mintern’s family-owned business is looking into flexible contracts that would allow them to change costs to clients in real time, rather than stick to fixed-price arrangements.

That’s a trend being seen across the industry. Others are bailing out altogether, because it’s now too hard to make any form of money.

Wayne Whyte is echoing the concerns mentioned by Ms. Mintern. Mr. Whyte has been undertaking custom renovations on properties across Brisbane for more than three decades and, with all of these factors hitting his industry simultaneously, he is now retiring early and liquidating his business.

The sector is bleeding profit,” says Wayne Whyte.

Mr. Whyte is especially concerned about the quality of work he is getting from tradies.

As labour shortages continue, his small company can only draw in less-experienced people.

“Walls have been built at the wrong height,” says Mr. Whyte.

His final job a two-storey extension with a deck sums up all his concerns with a sad metaphor.

“I only got a call on Friday about the toilet for this job. We can’t source it for eight weeks. Eight weeks for a toilet. How can you build?” says Wayne Whyte.

Mr. Whyte has since sourced a different toilet for the client. He is urging anybody who is considering a renovation to please reconsider it right now.

The team at C&D Restructure and Taxation Advisory are here to help. As part of the Vault Group we can offer the full suite of financial products and advice to help you navigate the business landscape. Schedule a meeting here via Calendly or give us a call on 1300 1 VAULT (1300 182 858)

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Craig is the principal consultant of C&D Restructure and Taxation Advisory and has been working in the industry since 1999. Having established C&D Commercial Partners in 2015 the precursor to the current business.

Post Author: Craig Dangar

Craig is the principal consultant of C&D Restructure and Taxation Advisory and has been working in the industry since 1999. Having established C&D Commercial Partners in 2015 the precursor to the current business.

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