Renovation and building costs set to soar

The recent COVID pandemic has driven an unexpected trend – a shortage of skilled tradespeople and building material.

The COVID-19 pandemic, combined with recent extreme weather events in QLD and NSW, has seen Australians deal with a whole bunch of issues from health concerns through to lockdowns and border closures. The extreme weather has also resulted in many homes, commercial premises and infrastructure projects needing major renovation and repair.

Now it seems these events have another unwanted side effect – rising construction costs. And no matter whether you’re planning to add a patio to the backyard or build a brand new home, chances are you could be impacted. For those unfortunate to have had their business or home impacted by the weather, the events will likely make it difficult to get tradespeople to quote and start on works. This all leads to a supply and demand issue.

Tradies in short supply

The Housing Industry Association (HIA) says the shortage of skilled tradespeople is “the most significant shortage on record”¹.

HIA Economist Angela Lillicrap, says, “All trades recorded a deterioration in availability during the December 2021 quarter. Bricklaying, carpentry, joinery, roofing, general building, and other trades have reported the most severe shortages on record.”

She explains the shortage is due to a boom in detached house construction and renovations, which has “seen demand for land, labour and materials skyrocket”.

The result, according to the HIA, is that construction timeframes are being pushed out.

And there may be no immediate relief in sight. Skilled trades are expected to be in high demand throughout 2022 and into 2023.

Construction costs rise 7.3%

The challenge facing home builders and anyone planning even a minor home improvement, goes beyond a tight supply of chippies, brickies and sparkies.

The latest Cordell Construction Cost Index² shows construction costs nationally increased 7.3% last year, the highest annual hike since March 2005.

The cost spike is being driven by increased demand plus pandemic-related supply chain disruptions leading to a severe shortage of materials³.

Be prepared

Rising building costs coupled with a shortage of tradies could impact your building project or repairs. For those, whose dwelling is impacted by weather events, close communication with your insurer and lender is key as they will guide you whilst you’re waiting on tradies to start. For others, the shortage doesn’t mean you should scrap plans, but it does pay to be prepared:

Before signing a building contract, check how the builder can pass on any cost blow-outs
Speak to your builder about realistic construction timeframes
For DIY projects, allow room in your budget for unexpected cost increases
Do a realistic budget, and get pre-approval from your lender before making commitments and signing contracts. For example, a lending specialist can make sure you will qualify for a loan if needed, obtain an “on completion” valuation, and take you through how the lender will fund your project. This can save you stress and money as the project moves along

If you’re planning a brand new home, a construction loan can be a suitable form of funding. If you’re giving your place a makeover, it may be possible to draw on the home equity you’ve built up through a loan top up or refinancing – it can be a way of preserving personal savings.

The main point is to head into any sort of building project with your eyes wide open. Speak to your LJ Hooker Home Loans lending specialist to know the finance options available to get started on your project.

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This article is prepared based on general information. It does not take into account individual financial objectives or needs and is not financial product advice.