Building costs are huge says Cordell Construction Cost Index

Western Australia has recorded the second highest annual increase in construction costs in the nation, up 10.4 per cent over the 12 months to June 2022, according to the new Cordell Construction Cost Index.

This is the highest annual growth rate on record outside of the introduction of the goods and service tax.

Construction cost growth is an additional concern to an industry already under workload and economic pressures, said CoreLogic research director Tim Lawless.

"Construction costs have increased more than 25pc over the past five years, which has a knock-on effect on builders' margins, budget blowouts for customers not on fixed price contracts and home owners waiting for their projects to finish or even start, in many cases."

Due to these significant supply and cost pressures, many trades such as bricklaying, have seen prices dramatically increase.

A couple of years ago it cost $1.10 to lay a brick in metropolitan Perth, it now costs $3.10, according to Master Builders Western Australia director of housing and construction Jason Robertson.

"A cost of $4.80 plus GST is being reported in parts of regional WA, which has placed many building companies in unsustainable positions," Mr Robertson said.

"Equally, the cost of transportation/haulage, from fuel and other associated costs has seen a drastic uptake in regional indexing for building costs.

"These price escalations with trade labour rates and building materials, along with the delays on materials have put more pressure on builders with costs and cashflow.

"In many circumstances they cannot be passed on, and for the housing sector these progress payments are vital for sustaining a positive cash-flow."

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JWH regional manager Tony Harvie, who oversees WA Country Builders, The Rural Building Company and Plunkett Homes, said there were currently three times more homes under construction compared to 2019/20.

"Across the nation, Australia is experiencing the worst material shortage in more than four decades, putting pressure on all businesses in the building and construction industry," Mr Harvie said.

"Whilst sourcing materials from overseas has always proven to be difficult, it has been exacerbated by the coronavirus pandemic, affecting our supply chain."

As the State's largest regional builder, Mr Harvie said JWH Group was invested in local communities and engaged with local trades to employ local people, however this can come with difficulties.

"We take pride in supporting the communities through building operations, contributing to a strong sense of community - part of what makes the regional areas a great place to live," Mr Harvie said.

"At times when local trades are not as available as we would like, there are inflated costs we acquire when building in remote locations.

"Esperance and Kalbarri are two examples, where we are co-ordinating trades to come onsite from 200-300 kilometres away.

"The rising cost of living, accommodation, petrol and food are inflated costs that we are absorbing but we are committed to delivering homes to these communities."

Partly to blame for the escalation in building prices are the COVID-19 building grants from 2020 that were implemented to encourage people to continue investing in the construction industry, said Real Estate Institute of Western Australia deputy president Joe White (pictured).

"No question the building grants overheated the market," Mr White said.

"It's caused a log jam.

"Building approvals are now through the floor, and the reason is no one can get a builder.

"There was such a demand for builders that you couldn't get the houses completed.

"The approvals might have been high, but the completions were low.

"It has caused dramas, and until we see those houses completed, we are not going to see the housing crisis really ease."

According to Mr Harvie, the introduction of the building stimulus led to an "unprecedented increase of home building approvals" in a short period of time.

Mr White was also concerned about the "market distortions" as a result of the COVID-19 stimulus, as it has resulted in not only a struggling construction industry, but also massive debt and rising interest rates.

"A lot of these things that were sent to help us, all it really does is kick the can down the road when you've got to feel the pain," he said.

"I am worried about leaving my grandkids with some of these debts."

Despite the pressures the COVID-19 grants put on the building industry, Mr Harvie still believes that they were a good decision.

"The State and Federal building stimulus grants created life changing opportunities for many people across the State," he said.

"The building stimulus grants were a wonderful initiative which helped thousands of young Australians to get into their own homes.

"The building stimulus grants resulted in a terrific outcome, but no one could have estimated the popularity of this initiative."

Further adding to building pressures are international governments' COVID-19 responses and current affairs, such as the Russian-Ukraine war.

"Ongoing government responses around the globe have and continue to see global supply chains heavily affected and impact the supply of critical building materials," Mr Robertson said.

"Further, the ongoing Russia-Ukraine conflict and zero tolerance approaches to COVID-19 by some governments has resulted in massive impacts with shipping and freight, both in delays and costs.

"Additionally, our ongoing national reliance with several key trading partners has exacerbated issues."

Mr Harvie echoed these thoughts, as both domestic and international affairs have continued to increase pressures in the building industry.

"In 2022, we had hoped to see these pressures ease, however the floods in Queensland and Northern New South Wales, the intercontinental rail line flooding in South Australia, along with the conflict in Russia and Ukraine haven't made things any easier," Mr Harvie said.

"Unfortunately, these national and international disruptions have increased the existing pressure on skilled labour and material availability."

"Builders, like everyone, are really feeling the pinch," Mr Robertson said.

"They are not immune."