Cost to build a house up $94k since 2021 as construction companies go under

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The cost to build a home has risen by more than $94,000 in the last 15 months amid warnings that half of Australia’s construction companies could be forced to close.

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The Australian Bureau of Statistics revealed in its latest building approval data that the average price to build a new house hit $413,436 in May.

It marks a $94,177 uptick on the cost to build a new home more than a year ago when the average price was only $319,259 in February 2021.

Homeowners typically sign fixed price contracts with their building companies on the day the project starts – which protects the signee but can at times leave traditions in the lurch.

Soaring material costs, the Covid pandemic, rising inflation and the war in Ukraine have all triggered global supply shortages and forced prices to skyrocket, sending many companies into chaos.

Paul Viney, the Victorian president of the Association of Consulting Architects, said builders had hiked prices to protect themselves.

‘Builders are terrified of making a loss [so] they build in significant contingencies to make sure they are protected against future cost increases,’ he told The Age.

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‘They are pricing through the roof because of that fear.’

The cost to build a home has risen by more than $94,000 in the last 15 months amid warnings that half of construction companies in the country could be forced to close (stock image)

The cost to build a home has risen by more than $94,000 in the last 15 months amid warnings that half of construction companies in the country could be forced to close (stock image)

The cost to build a home has risen by more than $94,000 in the last 15 months amid warnings that half of construction companies in the country could be forced to close (stock image)

The Australian Bureau of Statistics revealed in its latest building approval data that the average build for a new house was $413,436 in May (stock image)

The Australian Bureau of Statistics revealed in its latest building approval data that the average build for a new house was $413,436 in May (stock image)

The Australian Bureau of Statistics revealed in its latest building approval data that the average build for a new house was $413,436 in May (stock image)

Builders Collective of Australia president Phil Dwyer said the rising cost meant prices had increased for raw building materials at the expense of construction companies.

Builders’ margins have fallen from 25 percent to 8 percent meaning companies are struggling to make a profit and could be forced to close by Christmas.

‘It could be as high as 50 percent in the next 12 months after Christmas,’ he told realestate.com.au.

Housing Industry Association chief economist Tim Reardon said the increase in the cost of building a new home marked one of the biggest surges in prices in decades.

“We are looking at the fastest rate of growth in the average cost of an approved house build since 1982,” Mr. Reardon said.

The $413,436 cost to build a new home towers over the modest $11,543 it cost for a new build in July 1970.

The rise has been blamed on a combination of factors, including the Covid pandemic, with more residents focusing on building a house during the lockdown.

A surge was also seen in the number of first-home buyers wanting to build smaller homes and take advantage of the federal government’s HomeBuilder grants.

Over the past year, 85 percent of tradespeople have increased prices with more than half forced to do so in the past three months, according to a report by the Hipages jobs website.

Builder's margins have fallen from 25 percent to 8 percent meaning companies are struggling to make a profit and could be forced to close by Christmas (pictured, ProBuild among construction companies to fold)

Builder's margins have fallen from 25 percent to 8 percent meaning companies are struggling to make a profit and could be forced to close by Christmas (pictured, ProBuild among construction companies to fold)

Builder’s margins have fallen from 25 percent to 8 percent meaning companies are struggling to make a profit and could be forced to close by Christmas (pictured, ProBuild among construction companies to fold)

Costs of metal ores, plastics, and timber have been consistently rising for years, but particularly through the pandemic as overseas factories were forced to shut down for extended periods.

Costs of metal ores, plastics, and timber have been consistently rising for years, but particularly through the pandemic as overseas factories were forced to shut down for extended periods.

Costs of metal ores, plastics, and timber have been consistently rising for years, but particularly through the pandemic as overseas factories were forced to shut down for extended periods.

BUILDING COMPANIES FOLD

Several construction companies have folded over the past few months amid warnings many more are to follow.

Spiraling material costs, choked supply chains, fuel and vehicle price hikes, difficulty finding staff, and high wages have all been blamed for the widespread closures.

Below is a list of companies that have recently been forced to close, declare bankruptcy or go into liquidation:

  • Westernpoint Construction Pty Ltd
  • Fire Services Australia (FSA) Group

Costs of metal ores, plastics, and timber have been consistently rising for years, but especially throughout the pandemic as overseas factories were forced to shut down for extended periods.

With timber prices up by at least 20 percent and metal prices rising 15 percent in the past years, workers said raw materials are the major factor pushing up costs.

Several construction companies have already been forced to close as spiraling material costs, choked supply chains, fuel and vehicle price hikes, difficulty finding staff, and high wages all combined to destroy the viability of businesses.

Victorian firms Wulfrun Construction and Westernpoint Construction Pty Ltd are the latest companies to have gone into liquidation.

Prices of materials have been rising steadily since the beginning of the pandemic, but exploded in April and May last year (average prices of commodities - Arcardis statistics)

Prices of materials have been rising steadily since the beginning of the pandemic, but exploded in April and May last year (average prices of commodities - Arcardis statistics)

Prices of materials have been rising steadily since the beginning of the pandemic, but exploded in April and May last year (average prices of commodities – Arcardis statistics)

Analysis performed by Arcadis suggests major cities have all seen increases in building costs, with Brisbane the most significant.

The exception is Brisbane, which was largely unaffected by lockdowns but suffered from extended border closures. Our analysis indicates that Brisbane recorded a 12.1 percent increase in building costs in 2021,’ executive director Matthew Mackey said.

By contrast, Sydney recorded only a 1.5 percent increase and Melbourne 2.3 percent – ​​neither of these cities suffered from extended border closures to the same extent as Brisbane.

We saw stronger evidence of cost increases being passed through late in 2021 and we expect that to fuel significantly higher construction tender price inflation in 2022. Indeed, that is already happening in many capital-city markets as materials, commodities and labor cost pressures bite .’

Building contractor FSA Services Group is among the construction companies that have collapsed

Building contractor FSA Services Group is among the construction companies that have collapsed

Building contractor FSA Services Group is among the construction companies that have collapsed

COMPANIES ON THEIR LAST LEG

Rumors have swirled that other major construction companies are struggling to remain afloat.

Melbourne-based construction giant Metricon – one of the nation’s largest companies – sparked rumors in May that it was in trouble after holding crisis talks with clients and meeting with the Victoria Treasurer.

The owners injected $30 million into the embattled company, although the bosses have denied it is at risk of entering liquidation.

  • Snowdon Development Pty Ltd

In Victoria, Snowdon Development PTY Ltd could be facing insolvency after racking up $2.5 million worth of debt with 15 creditors as the firm’s projects stalled for months.

Creditors are now calling on the Supreme Court of Victoria to take action by forcing the company to go into liquidation.

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