30/07/2008 - 22:00

Construction costs to rise

30/07/2008 - 22:00

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It's a matter of debate among those in the building industry as to how far construction costs will rise during the next year, but the consensus is that the double digit increases of the past few years will continue.

It's a matter of debate among those in the building industry as to how far construction costs will rise during the next year, but the consensus is that the double digit increases of the past few years will continue.

According to property consultancy Rider Levett Bucknall, the cost of construction has soared 68 per cent during the past five years, and is expected to rise a further 11 per cent this coming year.

Much of this will come from increased material costs, especially steel, and is likely to be exacerbated by regulatory changes.

But those in certain parts of the market, like high-end residential property, believe cost pressures are set to worsen.

Malcolm Goode, director of boutique building company Artique Homes, said the cost increase would be closer to 16 per cent for his business over the next 12 months.

He said costs had been running at that figure since November last year, factoring in rises in plumbing, electrical fitting and roofing.

"We've already been told by suppliers to expect further increases across the board - bricks, tiles, aluminium windows, copper, fixtures and fittings," Mr Goode said.

The spike in steel prices in particular - attributed partly to the closure of steel plants around Beijing in the lead up to the Olympic Games - is also having a big impact.

"If we get a price [for steel] today, we have to confirm within 10 days or it will be revised," Mr Goode told WA Business News.

"We've changed steel suppliers, in order to fix prices for a longer period, but it's an ongoing battle."

As a result of climbing costs, Artique is repricing its standard model home every 60 days.

The last review was in May, with another due at the end of this month, which Mr Goode said was likely to show a 2 to 3 per cent rise.

And while there has been some respite in the cost of building trades, due to the slowdown in the housing market, the flow-on effect is not being felt.

"Some of the trades rates are coming down slightly, but not to the degree they did in the last boom," Mr Goode said.

The upside to a slower residential market will be a fall in the cost of bricklaying, according to Rider Levett Bucknall director Alastair McMichael, with civil engineering works also expected to ease on lower subdivision activity.

Master Builders Association WA executive director Michael McLean said he agreed with the forecast of a 12 per cent increase, particularly for commercial projects in the CBD and shopping centres, which use a large amount of steel.

However, he said increases in the residential market were expected to be closer to 9 or 10 per cent, with the upper end of the market more vulnerable.

"What tends to happen in a market like this is, with housing affordability issues [and at the first homebuyer end of the market], prices don't tend to come off as much. Whereas at the top end, clients have the capacity to pay for the increases and added frills, like glazing and reverse cycle air-conditioning," Mr McLean told WA Business News.

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