Time and cost of building a house blows out due to construction boom

August 17, 2021
Hopeful new build homeowners are facing increased cost by thousands of dollars. Photo: Peter Rae

The time it takes to build a house is blowing out due to the country’s ongoing construction boom, with reports some builders are increasing the build price to avoid making a loss, and devastated home owners walking away from contracts altogether.

The country has seen a mammoth construction boom since the pandemic hit with government incentives such as the federal HomeBuilder scheme and other state-based new build grants boosting activity.

While it has substantially increased business for builders across the country, the huge take-up in new house construction has left home owners with delayed building times and higher than expected costs.

Builders who signed up home owners months ago for house and land packages are now facing unforeseen supply shortages and increased material costs, leaving them with longer build times and a blowout in prices.

“The increase in supply costs, the delays in administrative tasks coupled with land registration pushing out to six, 12, and 18 months mean the builder signing up today has no idea what the costs will be when the house is completed; therefore, they’re not sure if they’re making a profit,” said Izaac Mathieson, Hallmark Homes general manager of sales and marketing.

He said his Brisbane-based company was prudent in the early days of HomeBuilder, making sure not to overcommit, but he has seen burnt-out clients from other builders faced with huge construction delays and, consequently, massive price rises.

“The smaller builders that possibly took work at a cheaper rate can’t build the house … or are building the home at cost,” Mr Mathieson said.

“The real risk is for the builder who has taken on too much work, and the land rego has been pushed out … they’ve signed the contract that makes the house build unprofitable.”

He said he knew of two hopeful home builders who walked away from their contracts because the builder increased the contract cost by $20,000. They could no longer afford to build their home.

In another instance, a couple shouldered a 30 per cent increase on their original contract price following a six-month delay in local council building approvals. During that time, the cost of materials had risen substantially. The builder even asked them not to go ahead with the project and cancel their contract altogether.

The home owner, who did not want to be named, said: “They’ve got more jobs than they have supplies for. They had the next two to three years of jobs booked in”.

It is a similar situation in Sydney, where there are increasing delays in construction due to issues with supplies, and with it a rise in costs, according to David Cao, C&L Solicitors director and solicitor in property law.

“We have certainly noticed some builders tried to increase prices, and in some instances, there were delays in construction,” Mr Cao said, adding that it costs up to $12,000 in some cases.

“Basically, it’s because of the increased material costs but also the anticipated delay costs [and] also government policies and the HomeBuilder and other first-home buyer grants. They all favour house and land packages. That’s why we have this current building boom.”

He said this had become a more frequent occurrence across NSW, Victoria and Queensland – the states in which the firm reviews – warning buyers to consult their solicitor before they make any decisions.

“It depends on the contract that each buyer has signed; some of them may have clauses there to allow builders to increase the price in some circumstances.”

While it was case-by-case for many home owners and their builders, GJ Gardner Sydney South managing director Mark Jeffree said the construction boom was putting pressure on the industry from sourcing supplies to securing council approvals.

“The delay in getting homes approved by relevant councils; that’s flowing onto a delay of getting onto the site, and that is affecting people’s holding costs and overall developments,” Mr Jeffree said.

He said lockdowns had only exacerbated the issue: “You could build a house 12 months ago cheaper than you could today”.

Jon Stoddart, managing director of residential construction supply company Stoddart Group, warned almost a year ago that the construction boom needed to be stretched over a longer period to avoid a “bust”.

He said the boom has since placed a lot of pressure on the industry as a whole.

“Any builder right now will be saying to customers there are extended lead times. Everyone is under enormous pressure, and you’ve got people locked up [due to] COVID,” Mr Stoddart said.

“I’ve never seen so much stress in the industry, and I’ve been here since the ’70s.”

The on-again, off-again lockdown in several states, the worldwide shortage of timber, the shortage of land and long lead times to have land registered and titled had caused the “perfect storm”, Mr Stoddart said.

“Any builder we’ve spoken to about the increase in price says this comes straight off their bottom line.

“Consumers are suffering because of the time it takes to build, and that is exacerbated because you’ve got products like timber in short supply now.

“Everyone is trying to make it happen, but there are so many constraints on it, especially with COVID hanging over the top of us.”

Hopeful home builders were also warned almost a year ago by experts to stay away from housing packages involving unregistered land if they were banking on the federal government’s $25,000 HomeBuilder grant to get them over the line.

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