Will it be any easier to renovate in 2023?

New home builders and renovators are set to face more pain in 2023 as construction costs continue to rise, due to labour and material shortages as a result of the pandemic and the war in Ukraine still biting.

“We’ll still have supply chain issues with the availability of some products and a major problem is the lack of skilled labour,” said third-generation builder Tristan Angelini, the managing director of Melbourne construction company Hillbrook.

“Interest rate hikes have slowed down some of the craziness for new builds and renovations, but they haven’t stopped it. And while we need more staff, we can’t hire from overseas because of COVID, the requirement for Australian qualifications, and they’d need vans that we used to get from Russia and which now have a two-year wait if they come from the US.”

A looming US recession could also affect the construction industry here, while changes in the national construction code have caused costs to rise even more in some states and territories. Victoria, for instance, agreed to increase the minimum energy efficiency building standards for new homes from 6 stars to 7, with better glazing and insulation.

Angelini, whose current projects include a renovation in the inner-city suburb of Seddon, said, “We’ve got contracts into 2023 and 2024, but that will add a lot more onto the cost of new homes and about 10 to 15 per cent for renovations.

“We advise consumers to do their research and choose a builder who’s reasonably priced, reputable and has mechanisms in place to avoid bankruptcy.”

There are different heating and cooling targets in Sydney, but the issues are just the same. Daniel Wright, director of Wright Construction, said it’s not going to be any easier in 2023.

“At the moment, we’re paying $80 an hour for brickies which is horrendous and, unless the market gets suddenly flooded with tradies – which won’t happen – that will stay the same,” he said. “We’re not getting all the workers from England, Ireland and Brazil anymore.

“The rate of growth of prices from materials is coming down a bit, but those costs only make up around 10 per cent of the total costs. We were getting in timber from Russia for a while, but not now. We’re all doing what we can to keep prices down, but we’re trying to get sparkies for one project, and it’s now crazy expensive.”

As the cost of construction rises, the average value of a new house approval has soared by almost $98,000 from March 2020 to October last year, ABS figures show.

The Housing Industry Association, the peak body for residential building in Australia, is a little more optimistic about the coming year. While construction costs rose 20 per cent in the financial year 2021-22, says HIA chief economist Tim Reardon, they’re expected to rise only a further 5 to 7 per cent in 2023-24.

So while elevated prices will continue, at least they won’t continue to gallop upwards.

“We’ll still see prices grow, but by 2024 that rate of growth we expect to slow considerably,” Reardon said. “The rises in the cash rate are taking demand out of the new housing market but, in contrast, we don’t expect renovations to slow at all.

“They’ll continue at that same elevated level as many people are now working from home and COVID lockdowns showed them how they wanted to improve their homes, while many households built up their savings.”

Although labour costs will be a recurrent problem, the availability of some materials will recover over the year ahead, he believes, although isolated shortages of certain products, like tapware and different types of tiles, will linger in various parts of the country. Home owners may have to substitute for their first choices.

Continuing difficulties plaguing the industry will tend to weed out the less financially stable players, however, said Phil Dwyer, the national president of the Builders Collective of Australia.

“We believe we can’t avoid ending up in a recession and that might also have the benefit of convincing manufacturers to offer more competitive prices as they’ll want to sell more product,” Dwyer said. “The supply chain will continue improving with time as well.”