Rising Costs Challenge Home Builders
The cost of building a home has been on a consistent upward trajectory for the past 30 years, posing challenges for both construction companies and prospective homeowners. According to data from the Australian Bureau of Statistics (ABS), which monitors prices for building materials and construction inputs, the cost of home building has increased steadily over the decades.
On average, building costs have risen by 0.5% each quarter and 2% each year. However, the last year has seen an unprecedented spike, with input costs surging by 12%, far exceeding the historical average. This significant jump highlights the growing strain on the industry and the impact of rising material costs.
Historically, there have been only 9 quarters out of the past 30 years where costs decreased, with the largest drops recorded at -0.75% in March 2000 and December 2009. In stark contrast, there have been 111 quarters with rising costs, and the last 3 quarters have experienced record-breaking increases, including a notable 4% rise in September 2021.
Looking forward, while there may be a slight stabilization towards the end of the year, with a potential return to the usual 1-2% annual increase, it is unlikely that costs will decrease. The greater risk is that costs may continue to climb at historically high rates.
Recent trends have seen a substantial rise in input prices for house construction, driven by higher material costs and robust demand spurred by government incentives. The industry has faced challenges such as material shortages and increased international shipping costs, contributing to these steep price increases. Specifically, timber, boards, and joinery prices have surged by 18.4%, driven by high demand and shipping issues, while metal products have risen by 13.2%, largely due to increasing aluminum prices. Additionally, other materials like paint and coatings have seen a 6.8% rise due to tight supply and higher import costs.
Navigating a Costly Future
As the construction industry grapples with these rising costs, both builders and buyers will need to navigate a challenging landscape. The future of building costs remains uncertain, but the trend suggests that maintaining a close eye on pricing and supply chain issues will be crucial for managing expenses and planning for the future.
