Construction costs are expected to continue rising in the next few years, although at a less dramatic rate than that experienced during the past 12 months.
Construction costs are expected to continue rising in the next few years, although at a less dramatic rate than that experienced during the past 12 months.
Many builders were caught unaware by the rise in costs last year, which the Department of Housing and Works building cost index shows reached 15 per cent. The department expects costs to rise by 10 per cent a year over the next four years.
Master Builders Association director of economics and housing, Gavan Forster, said cost increases over the past year were more significant for some materials, such as steel, which rose by 25 per cent over the past year.
“This year the cost increases won’t be as dramatic, but because of the amount of work in the pipeline, we foresee costs going up another 10 per cent,” Mr Forster said.
“The ongoing level of demand is not going to ease until at least late this year, if at all.
“The industry has a limited capacity and the factors that drove the skills shortages and price increases are still there.”
Quantity surveyor Mark Hampson from Currie and Brown said that while last year’s price rises had been forecast, the extent of the increases caught a lot of people unprepared.
“At this stage, demand is outstripping supply by a significant amount for materials and the labour market,” he said.
And there was little relief in the market for at least the next couple of years.
“There may be a slight lull because of the [state] election while the Government, traditionally the largest employer in the industry, is in caretaker mode,” Mr Hampson said.
“There is such a dearth of trades right now and so many enormous projects worth a lot of money going on that we certainly predict costs will go up over 10 per cent.”
An ongoing issue for most builders is the lag-time between when a contract is signed and when construction begins, with price increases often incurred in the interim, according to Mr Hampson.
“It depends on the sophistication of the builder to be able to deal with price increases – it is just as dangerous when prices rapidly increase as when they drop dramatically.”
Gavin Construction’s Sean Gavin said builders were under pressure as a result of the recent escalation in costs, which was the most dramatic price shift he could recall.
“There are two prongs to the price rise: supply costs and skills shortage,” he said.
“China has such a great demand for steel right now, and that isn’t going away – Perth is also particularly short of steel right now because of the new rail line.
“In terms of labour a lot of skilled workers are going to the north west and South West right now.”
Mr Gavin said the shortage of skilled labour needed a long-term solution, and that the situation would only get worse if answers were not developed soon.
“I think costs will go up a minimum of 10 per cent this year, and we have already seen rapid increases so far,” Mr Gavin said.
He estimated that the cost of steel had doubled from five years ago, and said that when one material cost went up it was like a flag to the other suppliers to increase prices.
