Builders play catch-up on costs

More expensive labour and materials contributed significantly to the rise in building costs during the past 12 months, according to a survey by accounting firm Bentleys MRI and the Master Builders Association.

In all, 80 builders in the commercial and housing sectors were surveyed. Of those who responded, 43 per cent said residential building costs had increased between 6 per cent and 10 per cent during the past year, while 32 per cent said costs had risen between 11 per cent and 15 per cent.

In the non-residential sector, 31 per cent of respondents said building costs had increased between 6 per cent and 10 per cent and 23 per cent said costs had increased between 11 per cent and 5 per cent.

Trades most affected by cost increases were bricklayers, plasterer sand tilers, while bricks, steel, concrete and tiles were among the products to have risen most in price.

Housing Industry Association executive director John Dastlik said rising costs needed to be viewed in the context of recent years.

“Cost increases in the last few years have been relatively small, so this year may just be a catch up,” he said.

“Any cost increases are still significantly lower than the increase in value of the housing market.

“There is still a far more competitive market for new homes than established ones, so yes, costs have gone up, but that is partly due to a catch up.

“As the heat comes out of the market then supply and demand economics will kick in.

“If there is a tempering in demand, there will naturally be a tempering in price.”

Colliers International manager of research David Cresp said the general feedback he had received from industry was similar to the results of the MBA and Bentleys survey – that construction costs had risen about 20 per cent during the past 12 to 18 months.

“This is making it very difficult for developers to make developments stack up, particularly medium density residential,” he said.

Mr Cresp said that apartment prices had not risen in proportion with the increased building costs, and that downward pressure was being put on land prices to compensate.

“Vendors expect that land prices will follow the residential market, but this is not the case because of increased construction costs, and land values will probably go down as a consequence.

“Developers can’t put the price of apartments up 20 per cent overnight, and they have to make these developments stack up, so land values are certainly one way of dealing with that.”

MBA director of economics and housing, Gavan Forster told WA Business News builders were absorbing most of the cost increases.

“A lot of contracts are set and then cost increases are incurred in the interim, which puts pressures on profitability, so the building industry has to wear the costs rather than the consumer,” Mr Forster said.

“However, it is a supply and demand industry, which is resilient and will come through.

“It just seems to be more intense now because all sectors are running a hundred miles an hour.”