Some home builders are about to get more expensive – but not all

Home owners could face higher costs for building work if they have not already locked in fixed-price contracts, experts warn, as higher fuel prices and supply chain disruption put pressure on builders.

The Middle East conflict could hit the number of homes being built, the federal government has warned, while experts say the increased cost of diesel could slow down infrastructure development and have flow-on effects for the housing sector.

Master Builders Australia chief executive Denita Wawn said her members were anxious and exhausted.

“The industry was already doing it tough: we’ve seen increases of up to 50 per cent in the cost of construction over the past five years, and productivity has declined by 20 per cent,” she said.

Wawn said many builders were already operating with slim profit margins before the Middle East conflict broke out.

Now, price rises for materials and the domestic delivery surcharges being applied by suppliers mean some builders on fixed-price contracts could soon be operating at a loss.

“The vast majority of building and construction contracts in Australia are fixed-price, and they are usually set anywhere between six and 12 months prior to work commencing,” Wawn said.

“That means builders are having to wear these additional costs, regardless of the fact that these were issues beyond their control.”

Phil Dwyer, national president of the Builders Collective of Australia, said builders who were forced to fulfil fixed-price contracts when costs surged during the COVID-19 pandemic were now experiencing déjà vu.

Dwyer said those builders not on fixed-price contracts would inevitably need to pass on cost increases to consumers.

“Trades and builders are concerned that their profitability is being eroded, but they don’t want to jump too quickly or they will be accused of price gouging,” he said.

He claimed only builders suffered under fixed-price contracts, not manufacturers or suppliers.

“One builder said to me, ‘We’ve suffered enough. We’ve worked for nothing since COVID. We finally completed those contracts, and now it’s happening again.’”

Dwyer said his members were less concerned with the cost of filling up their utes than they were with material costs increasing because of the disruption to international shipping.

“There’s talk of a 15 to 20 per cent increase in the cost of timber framing, for example. We don’t manufacture any of that locally any more, to our detriment.”

He said the impact of shipping disruption on the building sector was yet to be fully felt and that many builders were still holding their breath.

“The projection is that those price increases will really set in this month.”

The true impact of the conflict on the sector might not become clear for months, Dwyer said.

Wawn said the cost and availability of materials was top of mind for her members but that it hadn’t affected productivity on job sites so far.

However, she warned that an ongoing diesel shortage could indirectly affect the supply of new homes on greenfield sites.

“About 70 per cent of the diesel used in our sector is in civil construction,” Wawn said.

“Until the civil guys have been in there to do the sewerage works and the roads, the resi builders can’t build. So, if the civil guys stop, the resi builders stop.”

Housing Minister Clare O’Neil echoed Wawn’s concern about new-home starts.

“We do expect the conflict to have a negative impact on the numbers of homes being built, and the cost of building them,” said a spokesperson for the minister.

Wawn said that longer term, the biggest issue was the overall state of the Australian economy.

“If inflation increases more broadly, it could, of course, lead to an increase in interest rates and borrowing costs,” she said. “Even prior to this [war] we were seeing a lot of people not willing to go ahead with renovations or building a new home because of the cost escalations.”

Dwyer said his greatest worry was that higher material prices would persist, potentially making the construction of new homes less viable.

“When we see price increases, there’s always plenty of talk about, ‘Oh, it’ll be for two or three months, and then we’ll reduce them.’ No, they won’t. It never seems to happen that way.”

Overall, Wawn said her association was “concerned but not alarmed” by the situation.

“There is hope,” she said. “But you can’t hide the truth that there are now additional pressures on an industry that was already under significant pressure to deliver in difficult circumstances.”