National residential construction costs increased 10.0% over the 12 months to June 2022, according to CoreLogic’s Cordell Construction Cost Index.
That’s the highest annual growth rate on record, apart from a 10.2% result in 2001, when the GST was introduced.
CoreLogic construction cost estimation manager John Bennett said that as fuel, freight and electricity costs have been rising, so have prices for metal, structural steel, reinforcing, fixings, fencing and timber products.
“It is important to note these factors only add to other pressures that have impacted the residential construction industry for 18 months now, such as labour availability and overheads,” he said.
“A shortage of labour and materials means a delay in completion times, which leaves builders vulnerable to market changes and holding costs.”
CoreLogic research director Tim Lawless said the construction industry was under a lot of pressure.
“Construction costs have increased more than 25% over the past five years, which has a knock-on effect to builders’ margins, budget blowouts for customers not on fixed-price contracts and homeowners waiting for their projects to finish or even start in many cases,” he said.
Mr Lawless said demand was high right now, due to the pipeline of jobs approved during the COVID pandemic, as well as the rebuilding and repair work that needs to be done because of recent major weather events.
At the same time, supply has been restricted, due to a lack of materials, high fuel costs and broader inflationary pressures.
“All of these factors have an impact and are likely to push building costs higher for some time yet,” he said.
Five tips to protect yourself
As a result, this is a more challenging environment to begin a building or renovation project.
In light of this, here are five tips to consider to help protect yourself:
1. Get quotes from at least three builders. Check their references. And make sure they have experience with the type of project you want to do.
2. Think carefully about which pricing model you choose. You will generally have two options – a fixed price and a cost-plus price (which is the builder’s price plus an agreed margin). A fixed price will give you certainty, but builders might quote a high price to protect themselves against cost blowouts. Cost-plus tends to work out cheaper on average, but if the cost of your specific job blows out, it could turn out to be more expensive for you personally.
3. Before paying the deposit, ask your builder to provide you with a certificate of home building compensation cover, which is insurance designed to protect you if your builder can’t or won’t finish the project, whether due to insolvency or some other reason.
4. Don’t pay more than the minimum deposit, in case your builder abandons the project halfway through.
5. When your builder invoices you for progress payments, make sure the work has been properly completed and that the fee being charged matches the contract.
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