It has been a terrible time for home builders with many going to the wall because of the impact of inflation on their fixed price contracts, sparked by huge rises in the cost of materials.
Over the past two years, the cost of building a new home has increased on average by 28.2 per cent. In Brisbane, the worst affected city, this increase was close to 40 per cent. Any builder who’d committed to a fixed price contract before the rises just couldn’t survive that sort of cost increase.
But it looks like the cycle is thankfully starting to turn with construction cost increases finally starting to slow.
According to Ray White chief economist Nerida Conisbee, construction costs increased just 1.2 per cent in the last quarter – the lowest in almost 2 years and much slower than the 12.7 per cent over the last year.
A big driver of the cost falls has been cheaper materials. Supply chains have been running smoothly for more than a year and many goods produced overseas, like China, are no longer seeing Covid driven disruptions. Many raw materials are also cheaper. Steel, in particular, has come back in price. And those materials that aren’t yet seeing a decline in prices are likely to come back now that fuel prices are declining.
Job vacancies are the next hurdle to overcome
But a shortage of workers remains a problem. Over the past quarter there were 33,100 job vacancies in the construction industry – but this is down from the 40,000 vacancies 12 months ago. The number of jobs being created has slowed down. While migration has helped the shortage remains but will ease continue to ease over the next year.
Higher interests and sharply higher construction costs has meant people haven’t been able to afford to buy or build new homes. Building approvals are currently at a decade low and it will take some time for the pipeline to build. In the meantime, population growth because of migration is strong.
Long story short, the housing market is in a real squeeze and while we’re moving in the right direction, it will be some time before we see the benefits of these lower construction costs.