Rising Construction Costs: How Will They Affect The Property Market?

Renovation and building are virtually national pastimes here in Australia, and if anything, they became even more popular during COVID.

We have a strong affinity for all things building, architecture and interior design here on the Surf Coast, too. But the cost of residential construction is now increasing at record rates. We find out what rising building costs might mean for our property market.

The cost of building is on the rise

If you’ve been looking into building or renovating, you might have received higher quotes than anticipated. There’s a reason why. New data released by CoreLogic shows that Australian construction costs rose at a greater rate in the 12 months to September than ever before, apart from the year the GST was introduced. The national annual increase in costs was 11%, but here in Victoria, it was 12.3%, the highest of all the states. Our state recorded a particularly steep increase of 5.6% in the September quarter, outstripping the national rise of 4.7% and more than double the 2.5% rise Victoria experienced in the June quarter.

It’s an issue that’s close to home, with numbers from the ABS showing that the cost of building a house in our area has jumped. The Surf Coast Times reports that the cost of building a home in the Surf Coast Shire rose by 18% from the 2020-21 financial year to the 2021-22 financial year. Houses in Geelong increased by 13%, while in Bellarine and Armstrong Creek, they went up by 19%.

What’s pushing construction costs up?

Building materials are now more expensive, and that’s one of the reasons why construction costs are rising. In August, Master Builders Victoria (MBV) revealed that the price of steel products has risen 54.2% over the last three years, electrical equipment is up 39.4%, and timber, boards and joinery have increased 37.8%. Worse still, MBV says that these figures are only an average of the price increases seen in Melbourne, and that, in many circumstances, builders are experiencing even higher increases. But it’s not just material prices that are on the rise. The construction industry is dealing with a perfect storm of challenging conditions, with skills shortages, supply chain issues, rising inflation, and electricity and fuel price increases all contributing to its rising costs.

Some experts believe that the unexpected success of programs like the federal government’s HomeBuilder scheme, which was designed to support the building industry during COVID, is also contributing to the issue. A review of the program found that here in Victoria, more than three times the expected number of HomeBuilder grants were approved. Other states also reported higher-than-expected numbers of grant approvals. Some economists say construction costs would not be as high now if fewer HomeBuilder grants had been approved.

What role does home design have to play amid rising construction costs?

With the cost of construction going up, sympathetic and well-considered house and garden design has never been more important.

A thoughtfully designed home can help reduce both your construction and future living costs while maximising your enjoyment of your home. A house design and layout that considers the conditions of your site, including its size, aspect, slope, climatic conditions, and any existing structures, will help ensure the comfort, longevity and liveability of your future home. Taking these conditions into account may also save you money on the build or renovation. Working with what you’ve got, in terms of site conditions, can be more cost-effective than bringing in heavy machinery to level your block, for example. In the case of a renovation, making the most of the existing home can also save you money. Clever, sensitive house and garden design that works with, rather than against, elements like site orientation and climate can also save on heating and cooling costs down the track, not to mention minimising your carbon footprint. And homes well-suited to their surroundings are more comfortable and enjoyable to live, work and play in for many years to come.

How will rising construction costs affect the property market?

While rising construction costs will, of course, affect those building and renovating their homes, we can expect to see a ripple effect across the wider property market too. As it becomes more expensive to build homes, it’s likely fewer will be built by both developers and private homeowners. Some homeowners will decide to sell and buy another existing home rather than take the renovation or building route. Figures from the ABS show that both building approvals and the commencement of new homes are already falling. As the delivery of new homes slows, we may see more pressure placed on the already stretched rental market.

Meanwhile, in good news for homeowners, the higher cost of replacing a home could counterbalance rising interest rates and help to keep the property market on an even keel.
If you’re thinking of building, renovating, selling or buying on the beautiful Surf Coast, you’re welcome to contact me for advice. Get in touch today.